Q2 2020 Sonic Automotive Inc Earnings Call
Excuse me, ladies and gentlemen, this is the operator today's conference call is scheduled to begin momentarily until that time Airlines will again be placed on use a cold. Thank you for your patience.
[music].
Conference call. This conference call is being recorded today Thursday July Thirtyth 2020.
Presentation materials, which management will be reviewing on the conference call can be accessed at the company's website at <unk> Dot Sonic automotive dotcom.
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 projections information or expectations about the company's products or market or otherwise make statements about the future.
Such statements are forward looking in subject to a number of risk and uncertainties that could cause actual results results to differ materially from the statements me.
These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission. In addition management may discuss certain non-GAAP financial measures as defined by the Securities and Exchange Commission.
Please refer to the non-GAAP, we conciliation tables and the company's current report on form 8-K filed with Securities and Exchange Commission earlier today.
I would now like to introduce Mr., David Smith, Sonic and Eco Parks, Chief Executive Officer Mr. Smith, you May begin your conference.
Thank you and good morning, everyone welcome Sonic automotive second quarter 2020 earnings call.
David set the company's CEO joining me on the call today, it's our president Mr., Jeff Dyke, our CFO Mr. Heath Byrd in our executive VP of operations Mr., Jim Keane.
Today in addition to discussing results for the second quarter 2020.
Also provide an update on trends, we saw within the second quarter and into July.
Well, there's an announcement on our latest digital partnerships and accelerated expansion plans for Echopark.
After that we'll be happy to take your questions.
The second quarter progressed, we continued to see substantial improvement in operating conditions and automotive retail consumer demand.
Well April wasn't challenging market weighed on arc that weighed on our quarterly results, maybe improved greatly and we saw a dramatic acceleration in the rate of recovery. During the second half of June with rising consumer demand for new and used vehicles and service repairs in the majority of our markets.
Limited new vehicle inventory in certain brands drove higher gross per unit.
And actions we took in April to manage our used inventory allowed us to take advantage of used vehicle sourcing opportunities.
Then fitting used vehicle GPU in May and June.
Some noteworthy operating improvements sequentially from May to June 2020 include.
A 22% increase in new vehicle GPU.
35% increase in French honest used vehicle GPU.
A 16% increase in French fries ethanol <unk> per unit.
16% increase in French fries fixed operations gross profit per day.
32% increase in Echopark combined.
And at that on a gross profit per unit.
And 154% increase in consolidated pre tax profit.
Above all we remain disciplined and improving our financial liquidity controlling expenses and enhancing profitability at both our French aren't dealerships and echopark stores throughout the quarter.
These factors contributed to sonic achieving adjusted EPS of 64 cents compared to 62 cents for the corps second quarter of 2019.
On a GAAP basis, we reported EPS of 71 cents for the second quarter of 2020, including a seven cents benefit from a nonrecurring tax item.
In addition, dps growth year over year other second quarter operating highlights include.
<unk> as a percent of gross profit of 74.9%.
The decrease of 230 basis points.
Total SGN a reduction.
<unk> $4 million or 22% compared to the second quarter of 29 team.
Echopark revenues of $315 million, which was up 8%.
Echopark retail sales volume.
18207 units up 5%.
Echopark segment income of 2.6 million up 52%.
And available liquidity of $455 million as of June Thirtyth 2020.
An increase from $312 million as of March 31st 2020.
During the second quarter, we continue to improve our operating efficiency building on her experience our experiences during the last financial crisis.
I was more recent lessons learned during this pandemic, we're very pleased with the success of these efforts, which have enabled us to operate in a much leaner more profitable manner.
Through these initiatives Sonic expects to decrease SGN, a expenses by approximately $7 million per month.
Or $84 million annualized as compared to pre coated 19 levels.
I'd like them Sosh that this represents over 50% of our adjusted pre tax profit in 2019.
Indicating tremendous earnings upside as we returned to more normalized there's no business levels.
Moving onto our operating segments, our franchise dealerships year over year performance reflects the challenges we faced in April and early Mary as a result of covert 19.
During the month of June Sonic experienced a dramatic recovery in new and used vehicles, new vehicle sales volumes gross margin and fixed operations gross profit.
This recovery accelerated during the second half for the month well ahead of our previous forecast.
I'm very happy to report that this strong sales momentum has continued throughout the month of July today.
Now turning to Echopark as expected Echopark sales experienced a V shaped recovery and sales volumes and improved profitability as a second quarter progressed.
By June Echopark had surpassed our original pre pandemic unit volume forecast for the month as noticed as noted in our press release. This morning second quarter Echopark segment income increased 52% demonstrating operating leverage and profit potential of this model.
Notably all of our Echopark stores were cash went positive in June 2020, including our 10th of store and just its second full month of operation.
This momentum has continued into digital into July.
As more and more guess relaunch the tremendous value in the pricing quality and convenience that are echopark stores offer enabling our gas to enjoy a modern hassle free car buying experience.
Moving onto our digital retailing initiatives as we announced this morning, we're very excited about our historic strategic partnership with Cox automotive and Darwin automotive to develop a first what is causing proprietary E commerce platform and user interface by the fourth quarter of this year.
This digital retailing partnership will be key to accelerating our echopark expansion plans.
We are dedicated to elevating our online retail guest experience to match the.
The great guest experience I guess have come to expect onsite at our franchise dealerships.
At Echopark stores ended Echopark dot com.
As you can tell we're very excited about it could box performance in this challenging environment and believe these quarterly results speak to the strength of this unique business model.
Echopark continues to outperform our original expectations, demonstrating the revenue growth operating leverage and profit potential of this brand.
Further echopark is a unique and scalable business model.
Not yet begun to reach its full potential.
Earlier this year, we announced this aren't going to grow its total revenues to $20 billion. This decade.
Since that time, we have actually revise our original echopark expansion strategy to achieve more rapid growth of the Echopark brand.
So I could parks extraordinary success to date and after an extensive review of our growth strategy over the past several quarters, we are dramatically accelerating our expansion of the Echopark brand.
While we remain committed to managing capital expenditure levels in the short term.
Flexibility of the Echopark model has proven greater than we originally anticipated.
Our capitalizing on Echopark highly trained guest experience centered team.
Our centralized appraisal inventory in pricing procedures as well as of the development of the newly announced proprietary E commerce user interface.
We can strategically and efficiently build out a national footprint by opening new Echopark delivery and bar centers in adjacent markets to our existing locations in a very capital efficient manner, realizing returns on investment in excess of 55%.
By utilizing enhanced online sales capabilities and the next to last mile delivery model. This will allow us to quickly expand echopark into new markets across the country with minimal capital outlays were overhead costs.
As our customers nationwide will now be able to shop.
Echopark dot com through our Echopark mobile App war on Friday that I, Didnt Echopark retail hub location.
Based on these expansion plans by 2025, we expect to have a nationwide distribution network consisting of.
140, plus echopark retail hobson delivery and by centers generating over half a million retail vehicle sales annually.
And $14 billion, an annual Echopark revenues.
The planes that Weve announced today or based on internal modeling we've been conducting for the past several months.
Even by our most conservative models and taking into account the more recent events and coated we believe these objectives are quite achievable.
And we have the team and tools in place to execute our plan.
Our first delivery and by centre in Greenville, South Carolina Open last Friday and delivered its first vehicles on Monday.
Gross is well underway for opening the next several markets and we look forward to providing updates on our progress and results over the coming months.
Before we get the questions I would like to take a moment to express how proud I am aware mark by the way our team continues to focus on meeting the needs of our guess our teammates in our business partners. During these challenging times and beyond.
I would personally thank each of our teammates for all of their efforts and continued commitment to taking care of our guests as well as their dedication to the future of Sonic and Echopark.
This concludes our opening remarks, and we'll be happy now to take your questions.
And ladies and gentlemen at this time if you do have a question. Please press Star then in number one on your telephone keypad again that start then in number wind for any questions.
And your first question is from the line of Rick Nelson Nelson with Stephens. Please go ahead Sir.
Thanks, Good morning.
Oh well one.
Hello apartments or.
Five year plan.
Quite interesting 140 distributors conference.
Hi looks like your.
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<unk> next year.
Maybe you could or could there to be a deliberate.
I love to term out how many of those you're thinking about for next year and.
Yeah, [laughter] color hideouts around how you're going to attack or these markets, where you don't.
Stores.
Hey look it's Jeff Dyke sure, we're gonna well open 20, delivering buying centers next year. That's our plan, we'll probably get three to four opened this year as David said in his opening comments, we opened Greenville already last week and that is going quite well already we're delivering cars into the marketplace, we're actually using RPM.
W. store in property they already have there, but we own property for Echopark in Greenville market. So I put a small facility up here are the good news is those facilities.
Really light on Brett, maybe an investment of $1 million to $2 million versus a medium size for but you know anywhere from $5 million to $12 million and a big store, that's $15 million to $25 million. So we can very efficiently and effectively move into a market.
Those delivering five centers will be three to 400, plus or mark maybe as much as five think of them up wouldn't that that's the hubs are for medium short 750 or large toward 15 until it just makes all the sense of my world built up it allows us to rapidly move out echopark brands to medium and big markets.
Across the country, but a lot faster than we originally anticipated on best we get the 140, a unit marked by 2025 and the 14 billion in revenue. So we're very excited about that the brand is doing very very well, that's allowing us to go ahead and make these moves.
Harry <unk> trail, or Hey, Brett how much [laughter] hub.
Stores gear on bedroom, two or two but it was planned them [laughter] dilemma right pick up floaters.
So this is Jeff again, it'll be 20 are delivering bikes enters the year and probably somewhere in the three to five range in terms of hubs a year will attack the bottom half of the U.S. first.
And then you'll see us or moving into the northern part of U.S., but then yes, three to five hubs of year in and Atlanta Forney delivering by some of the year.
Rick This is David in something somebody to it is a key to understanding. This model is that are you think about it our.
Our retail hubs centers at the big stores are reconditioning centers as well so they're they're highly profitable.
While they allow us to recondition vehicles.
And that's something that's very important.
Yeah, you charge so easy.
To the consumer ticked up whose periodicals or could the market or is that something sonic Oh, well we did.
Within 200 to 300 miles right now there is no fee or they're going to charge. The consumer we'll see we'll put up like here as we move forward and see how that works up let's look at the margins.
It's going to depend on consumer appetite. So we'll see kind of held that works right now gringo, we're delivering cars into the market already there was no charge that the margins are good. So we're meeting our expectations already but we'll play that buyer.
With a lot of learning the model. So we'll see how that works if we get bored.
[laughter], even go what were to People's driveway started they come to a central location and it's more a they're going to come to a central location, we're not going to deliver the last mile. That's where you had a lot of complexity in a lot of expense and so that's just not something we're gonna do I, we're going to deliver to the neighborhood so to speak and so in Greenville right now it's four.
And to our BMW mini store, where guests are picking the horizontal but again, we have property right across the street from there and right across the treatment Carmax.
Well, they do a lot of volume in the marketplace or will well built something that's.
Quite reasonable in terms of expense, there and delivering to the marketplace from Charlotte and eventually in the first quarter, our Atlanta location.
And Rick This is here I think it's important to note that we think there's value in happy knowledgeable delivery right. It's not someone that's driving it a truck and dropping off a car in hand, you keys and asking for signature. It's someone did knows the vehicle can hook up your Bluetooth can give you a full walk around and it.
Uhhuh delivery on it on a on the product is this complex as a vehicle. We think that is a better user experience and someone that does nothing about the vehicle pulling up and dropping off the car.
Yeah.
Yeah, Hey, Penny cannibalization <unk>, Oh, you know your existing hubs stores who's who of course, it's mark hopes for do you view it it's incremental sales.
We view as incremental sales, that's 100% incremental Rick.
Hi, good when you look at when you look at most of our sales existing sales there they're not we're purposely targeting markets that are beyond that that we each.
[laughter] kind of true your slide <unk> current on page 16, you know talks about a maturity of the hub stores I'm is deliberate and buying centers the cubs her volume.
I mean upgraded Cogs as to how long it takes to reach I'm sure there.
So you know we were told everybody that it takes a year to get a store or six quarters or so to get a sort of where we feel like it's mature, but they just keep we just keep beating all the maturity levels and so you look at sample David said. It earlier noted was profitable in the first two months of operation.
So maybe three to four years for profitability in mature volume something of that nature, but we're learning every time, we open more of these stores they keep opening faster they ramp up quicker or it just seems like we go from zero to 400 portion of immediately and then we sort of ramp up overtime.
The full maturity is somewhere in the three to four your range, it's something to keep in mind. It said that Tampa store opened right in that.
And the gaps of code that you know so it's not like it open and it really kind of open in the worst time, it's still became profitable probably very quickly.
<unk>.
Oh, Thanks, and good luck.
Thanks, a lot of record Q.
Your next question is from the line up for Chad.
Good so with JP Morgan. Please go ahead.
Hey, good morning, and thanks for taking my question and I really appreciate all the details or in the slide deck, you're writing helpful.
Oh no. This is kind of a question of narrow arm.
You know just on the S.G. any profire, you're going forward, you've talked about the 84 million expense reduction you know you give us a pro forma.
Yes space, but but youre expanding into.
A you know echopark growth strategy going forward, you know with that with the delivery by location.
How should we think about the the profile of a pass you to gross here in the near term or at least.
The initial years all these all these expansion plan before they hit majority.
Just the things like marketing daughters, Oregon overhead costs or you know just things like that guest experience management Center appraisal just curious as to.
Should we be pursuing any kind of or stuff on a in expenses her or like how do you argue managing this you know.
Overall cost buckets, what you're welcome and I will follow.
Yeah. This is he's obviously and we reported you know previously you know there's always some opening expenses.
As we ramp up but we used to indicate there was about $2 million for every store and that's been dramatically less going forward, obviously, the the delivery by sooner to be a lot less than that as well, but what we're finding is the due to our ramping up so quickly and you look at both the models nickel broke into our growth as if you look at.
Hi, good harm in leverage is so much better than the franchise stores in so that 84 million to straight to the bottom line.
But as we grow the Echopark again with the way that we're doing the buying delivery centers.
It's not going to with the leverage of that segment. It is not going to impact materially number good given you and I'm a good also the existing echopark stores are performing so well that they'll offset the cost would be opening up new store. So he's right 84 million said drop straight to the bottom.
Following that 7 million a month.
NSP United reduction you could just you could take that an add back to what we did last year accounted for the new so that EPS model.
Okay got it. So so do you have you had to gross like going forward should be like 70% to 70% range is that a good number.
Through model and don't get me or not.
Got it got it okay I'm talking in seating.
Same thing on pointed you made about advertising you aren't advertising is our price right. So.
All of our advertising goes into Internet advertising social media its not TV, it's not the brand advertising some of our competitors do and that allows us to bring the price down drives more volume and make more profit and so we've seen that we've got more leads if we can deal with now.
30000 leads every month.
And so that that price is the advertising and that's what drives profitability in that echopark segments. So quickly.
Got it got it got a that's helpful and.
Okay. That's all this accelerated growth plan.
Now it looks like the business.
The capital out knees are not got March you know for for the for the delivery centers out you know seems like the business is starting to function in a more brendan.
Of the franchisee stores on your cash movement brewing doesn't anyway, you know accelerated potential separation of Echopark from the franchisee business you know just curious.
Do you know what's the latest POLATOM there are clearly no. This is an attractive.
Business.
Barrels.
I just thought soda.
You know all this that is oh. Thank you for the the question, but I think it's just we're going to continue to.
To grow the business, how should we put out there and we just rather not.
Get into.
You know, what ifs and possibilities in there in that area, but we're going to certainly we want to execute on this plan that we put out today and what do you know I would add we actually believe that we are the.
Omni channel and the omni product option, we got the full spectrum of automotive needs. All the way from new use that are more than five four year old fixed ethanol in the franchise side as well as the separated Echopark is that gives us a full spectrum of the industry, we think thats it.
Very strong model and on top of that with this expansion plan as we open up that that our E commerce option and improved got it become best in class on E. Commerce site, we truly become the omni channel choice you can do on slide you can do a line you can do somewhere in between and so there are synergies between the two companies.
We think that's what makes us valuable.
In one things that we do as well as we've talked about in previous call is that a lot of theres a lot of.
There's a lot of vehicles that come to us at Echopark that we then we're able to share their retail stores that have added lot of value along profit to our our retail franchise stores.
That's a that's helpful update and good capacity you know just on July Morphin near term question you know.
That's where the color on you know you guys DNA to grow some like just because it's scary who.
You are spending.
Within within the month and you know like just just what how are you planning for you know August.
Like well, what's your outlook here.
Our job on yes.
Auction pricing sourcing pricing.
Hi, how are you doing it sounds like.
Oh Gpus could trend Oh, sorry for the rest.
So this is Jeff what the July is a lot like June it's just it's been a great month, so far I think we put it out there in our deck Nucor volume is about the same all 15% to 20% somewhere in that ballpark are used vehicle volume up in the low low single digits.
You know it's down in the low single digits on fixed operations. That's a great news visit our profitability is up it's going to be up in July and the 140% range or so.
So the F. DNA is there it's going to be in the upper 60% range in terms of so it's holding up just like we said it would and I would model that on into August and September. There's no reason for us to believe it's the nucor inventories getting better so nucor ER volume will improve as we move forward.
Margins are good across the board so the third quarter should be a break order for us.
And this is Pete I'll add when you look at that Slide I believe is 33 33, you look at each of the months of things pretty telling you. Obviously you can't compare June and July when you look at the operational metrics. The goals June was a a quote renting month and those were always stronger.
Do you lie on its own is looking extremely strong and I guess, obviously with our as you need reduction in 141% over last few pretax. We're very pleased with I think we're planning a mid September sort of third week of September update for you guys will continue to send out or update apply.
I for everybody on a monthly basis. So we.
We can keep kind of up to speed on what's going on and keep a lot of color coming at you in terms of outperformance.
Got a great yeah. So don't have been supper helpful recently, and thanks again and good luck.
Thank you so my view.
Your next question is from a line of Armintas think indicted with Morgan Stanley. Please go ahead.
Great. Thank you for taking the question.
Yes, you provided us with the update mid June targeting 23 to 33 cents, yet and I was already.
A whole lot better than the than the minus 50 cents from from first quarter results and and continue to surprise to the upside what what happened between I know I know you're talking about the acceleration, but hoping to get a little bit more color on what drove.
23 to 33 cents up to a.
Effectively 64 cents, excluding the onetime tax benefit.
Yeah, Jeremy was just an outstanding Mike maybe our best brought that month non December Onest company's history and it was volume gross.
SGN a you name it at all happened it all came together for US and you think about it in our 64 cents I think when we went into June we had a penny you know kind of on the books for me made 63 cities in the month of June alone.
And so there's just a fantastic north across the board you hit on all cylinders Echopark. It was a single best month, we've had and at the Port history in terms of volume and profitability. I think we averaged 560 talking cars are stored at $550000 in profit per location and averaged almost $1000 for probably.
At Echopark those are the gold standard numbers and that's going to continue to happen I mean, we're seeing that in July and we expected to continue on into for the rest of the third quarter. There's just nothing sort of seen in our way at this point, even with the the hot spots opening up in Texas, and Florida with with Coke.
Good.
As to executing at a very very high level and the expenses are just outstanding. We're learning her first what is better than it's ever been or sales associates that we're selling 10 and 11 horse for sales associates are now 17 at Echopark or 25 to 30 I think our best performance is our Charles store 34 units for sales associates. So it just.
You know, we're having a blast and getting better than this and and and so it's going to be a great run for the rest of the quarter and into the final thought a year.
David I think that that a big part of the two is that our are not just our top four or five.
Leaders in our our leadership team down into the stores and regionally or all had been whether it's very long time, we had very low turnover and a lot of these guys have been through again, the financial crisis and all that so when this when the pandemic hit.
Our team jumped on it and really executed and you know it's like missed.
Assesses the mother of invention right, but they they implemented some of these reductions and and raise the bar for as Jeff for saying for productivity per person said look you just have to do more with fewer people and executed and found out that could actually do it and now they're.
There are believers in their bought in its not just the again, it's not just the top four or five people, it's down into the stores. They know they can do it and there they're very excited about I'm also had been in June all Echopark stores were cash flow positive that the folks and even our young stores really standpoint long beach.
We're making money were cash flowing so.
That's a big deal for US you know, we looked and we say it's going to take six months nine months to get them profitable and were good and profitable and eight weeks.
So the models really paying off for us and that's why we're going to go on this care from an expansion perspective, because we keep we keep getting better.
As time goes on and how we open the stores is much more efficient we if we would open the Tampa store like we used to open one two or three years ago. It wouldn't have been profitable. So the team is learning and even in the pandemic figured out how to open a store and get profitable really fast.
Okay, and then with the new with the new delivery and by centers you mentioned the the one in Greenville is located at a BMW mini sorry that sound like it will start cannibalizing the volumes from your franchise.
Is is that the right way to think about it that the volumes on franchise usual, sorry, deteriorate and and you know really ramp up the echopark volumes.
I wasn't quite the opposite it's a different customer yeah, and remember we're sharing inventories so that BMW stores and we get all the freight and said we don't sell because they also want to 40 on course, Echopark and if you look at our Denver market, our stores in Denver, or having a record our franchise stores in Denver, having record volume numbers at this point in a record.
Bookstores, rather than having record volume numbers and so I think our Denver market, selling 15, undercar something like that and more having record profit along with the franchise store rolling Dirty for our business. So it's quite the opposite that's why you keep these stores together they say they work in harmony together, we saw a lot of course other franchise stores and we'll continue to do.
That even with the delivery by centers.
Okay, and then just the last one year on with regards to digital you made maybe you could die.
Under the Hood, there little bit and share your thoughts on on the the cost into Darwin automotive partnership I know digital has been something you considered in the path I think the thought was maybe you do something last November.
That got kicked down the road a bit and here. We are again, so just what what what's been the that don't hold up.
Good point and how do you envision it being differently, what do you envision that at the end result, looking like.
Sure the seat I'll I'll start off a thing from our perspective ecommerce is a is that as a spectrum. It isn't just ecommerce isn't just someone did this shops and buys a car completely online in fact that very rarely happens even in our and their competitors world.
It exists from ecommerce is shopping it is getting the price is getting credit. It is getting financing it is pretty down a down payment is getting a product and it's getting paperwork done and people go in and out of that spectrum a different parts of their experience. So you have to have.
The infrastructure that can handle each of those elements and it's someone stops on the third step you can easily transferred on site or remotely with our centralized call support right and so Darwin is that that hyping, we want to use Darwin right now to service our customers on site.
And so Darwin on line.
Takes that into the online E Commerce world. So that we can easily converts someone did stops at credit and calls and wants to talk with someone at that point or comes on site, we never lose that deal right. So that's a very very important part of an ecommerce strategy in an odd.
Motive World. This is not like buying a pair of shoes right. There's two.
Parts, and so that tightening of Darwin allows us to move back and forth in those settings.
We then looked and we did resurgent every single company out there and we were we are going to Scott's automotive they have never built the proprietary system for any dealership group and they've agreed to do that as you know they've got the technology resources.
Noted experience and so they are going to be building on top of during the one that best in industry user experience. So as people go down that spectrum of fund will have the commerce. It is going to be intuitive is going to be easy to use is going to look very similar to other ecommerce companies.
It makes it a lot easier in so that combination.
We took our time because this isn't something that you should just throw together just so you can put a slot out there and name somethings.
Yes, whatever it is and say you in ecommerce we want to do it right and what to do it where customers shop, where they want to that and it's not something you throw together quickly and so we were very.
Specific about taking our time to make and that the part that it needs to be the combination of content automotive and Darwin with our experience in the store. We believe is going to be the industry leader in an omni channel option for our customer funding.
Timing wise, we are we anticipate that we will have Darwin is rolling out right now on the franchise.
And there will be going into Echopark in August and Cox automotive and Darwin's product will be going out in the fourth quarter of 2020.
Okay, great appreciate it.
And this is David it's so important to remember how big this market is and even the largest competitors has had just a very small fraction of the market. So that you know our existing echopark customers are just part of the market. These people have yes, they love coming and shouting that our store.
Yes that people that are going to be served by this new.
E Commerce, which is again as he said, we very deliberately been rolling this out of the pace, where we thought we could make it can be extremely profitable as we mentioned the 55% return on these deals and this will be to new customers, who choose to shop in that way.
They've been very diligent with Echopark.
And we're being very diligent with this process as well we've got a history of that we want to make it right.
Make an industry, leading and when we get get done it will be all of that.
Okay, Great I appreciate it.
Your next question from a line of Bret Jordan with Jefferies. Please go ahead Sir.
Hey, Brett exit.
Good morning, it's actually you can only on her Brett thanks for taking my questions.
Looks like a lack of new vehicle supply is expected to sort of continue to weigh on things here in the back half of the year.
When you guys expect those levels to normalize and then should we see this sort of offset by higher Gpus.
Hi, This is Jeff that's exactly right, it's going to be a tough road you know for July August September. Although we are seeing inventories improve they're just not going to improve rapidly I would look for October November timeframe. So, let's get some normalized inventory levels well the great news is low supply equal find margin and so we are.
To make a great margin and certainly making up from a growth perspective, new models or someone else and so that it's all it'll all work in our favor as we move towards the end of the year.
Gotcha, Great and then with some back to the country, where covert seems to be flaring up again, you guys seeing any demand changes in any particular regions lately.
A little bit in fixed on the West coast, that's what kind of we've kind of adjusted our trend. There for you guys on a monthly basis as you can see on the charts.
It's just spend a little bit more difficult to come back on the west coast, but other than that.
Like I said earlier, Texas, and Florida flare ups, there have not really affected our business, it's more new vehicle inventory than it is that.
Were given all the right thing because it perspective for our debts in our associates on taking all the right to cautions doing all the right things. So we're not really finding that to be a detriment to the business as much as we are.
New vehicle inventory shortages in particular on these shows.
Gotcha.
And then just sort of high level. If you guys have any internal projections on where you think sorrow shake out maybe for 20 and 21.
You know from them.
When do you feel searching for theme that retail going to be 13 14.
You know and probably getting the same and 21.
Police, what's most impacted.
Just because all the rental car companies in the big problems that you see hurts et cetera.
It's steady as she goes in particular as the inventory some questions. The demand is there for the color because inventory comes back it'll be steady as she goes from a new car perspective.
Great. That's all I had thank you very much for taking my questions you back to you.
And once again, if you do have a question. Please press Star then a number wine on your telephone keypad again that stars in a number one for any questions.
Our next question is friend of mine of John Murphy with Bank of America. Please go ahead.
Good morning, guys.
I just want to jail.
Once a follow up on just Cox Darwin.
Development and I mean, you kind of talked about sort of an interface in a smarter interface and that the like but Cox.
Manheim, the auction about 5 million vehicles year, and they return a lot of them.
I'm just curious.
You look you did is there an opportunity for you to source and return on the goes directly from Manheim, and then turned around and retail them very quickly and increase your turns and really kind of leverage delivery in by centers. I mean, you just seems like you're you're tying up with somebody can.
Really help you out on the back end there.
Yeah, I mean, they're already a great partner and we source a majority of our inventory for you've done as it is like they figure a great job for us on reconditioning wise.
We've worked with them on several projects like that they've made some improvement certainly discussions that we've had with them in particular those centers that are close to our through our short.
So that's not something that's four thats good thinking.
But in terms of sourcing if we're not we're one of their plus buyers in the country and so.
We have a great relationship with them they do a great job for us and resource the majority of our inventory grew up and is really important to remember that this is a partnership what they've never done before.
Yes, they've never built a proprietary instrument for anybody.
And they are just they they've just been unwilling to do that historically.
But.
As a lot of competition out there I think there mines are changing on how that works and when you combine them with Darwin.
We're just sort of the piping to the swimming pool. If you will when you combine those two things with with what we've already built internally, it's going to be a great product for the consumer from a user interface perspective.
Okay and then also on the used car being I mean is there any discussion or thought internally of building out a captive finco.
No I mean, if you look look at the look at the progress that we've made an ethanol line a tip. My hat you know to Jay M&A, Who's just going to a great job because allies done a great job with us I mean, our gene numbers I think we're a little over 2100 all in.
P. you are which is an all time record for us and that's sort of industry best I mean, I think automation, maybe a little bit higher than that.
And so when you get into that level, what was going to make a whole lot assess and take the capital go off and and create a finco. So I'd say.
They are eliminated with some of the risk there's just no appetite here for that it doesn't do anything more for US we've got great relationships. The banks, it's all paying off it adds complexity and as you know we hate complexity. It's just it slows us down and we got a handful now with what we're.
Off and running a doing and what we laid out today. So that we're just add a lot of a lot of complexity that we're not interested in having John we've actually receive we've looked at it several times in maternal capital is so low that let you had like high subprime population and we just do not have islip on population.
Got it Okay, and then just lastly, I mean.
What you're doing here seems to be much more focused on expanding rapidly in used car market, which makes up a lot of sense, but just curious as you looked at some of the activities going on a new car franchise side, where there's an acceleration in M&A activity.
What do you think about that and is there any opportunity in that direction or is it kind of just full throttle higher returns higher margins on the you side and that's kind of directionally going to go in more as far as growing the business going for any what's the opportunity set on on the new side and why you think it's kind of different than what some other folks going after.
I mean, this is Jeff we'd love to franchise business its fantastic their cash machine for us if there's opportunities out there across the board will take we'll look at and we look at them every day.
And we May do a deal here or there, but the returns at Echopark are so high on versus the returns that were getting the capital you have to put into a facility you name. It just makes a lot more says to put your cash into echopark, but that does not mean that we will you won't see us through a deal. We're looking at a couple of deals right now it's better effect.
And we'll see what happens but.
It's a lot more cost effective to invest those mechel part, yes. This is David I think that.
Things we want.
Our investors understand how focused RPM is on on ROI and allocating our capital better than Weve, well, then we ever have in the history of the company. We're really focused on that so it really is not a emotional thing is just simply we talk about.
55% return on this new model.
With Echopark and Echopark dot com those returns or just.
Hard it's very difficult to think multiple to be that's kind of returns in our in our business.
Great. Thank you very much guys.
Thank you.
[noise] and at this time I'm showing there no further questions I'll turn the call back over to you Mr. Smith.
Thank you very much we appreciate everyone and thank you have a great, especially.
And this does conclude today's conference call you may now disconnect.
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