Q2 2021 Sonic Automotive Inc Earnings Call

At <unk>.

But also showcase songs continued ability to maximize operating efficiency at our franchise dealerships as well as the continued successful expansion of Echo parks nationwide network.

We are confident that our strong operating performance can be sustained throughout the balance of 2021 and well.

Into 2022.

And we are well positioned to grow total annual revenues to $25 billion.

By 2025, while continuing to significantly increase our profitability.

And our core franchise dealership segment second quarter revenues were $2.

$8 billion.

A 53% increase from last year, which reflects rebound and consumer demand since the hydro pandemic and 2020.

Gross profit for the second quarter was $475 million.

Of 69% from the prior year.

Total franchise.

Pretax income was $165 million and.

And increase of $131 million.

Or 375%.

Compared to last year.

Same store franchise dealership revenues rose, 55% on a year over year basis, while gross profit was.

And was up 74%.

On a 2 year comparison same store franchise dealership revenues increased 25%, while gross profit grew 40%.

Compared to the second quarter of 2019.

Franchise dealership total variable gross per unit was nearly 50.

$100 per unit.

43% year over year.

And up 58% from the second quarter of 2019.

Benefiting from strong vehicle margins and all time record F&I per unit of $2100.10.

Our franchise dealers from performance.

Has been enhanced by execution against our plan, including discipline around SG&A spend.

Focus on our parts and service business and our continued ability to efficiently manage our inventory.

Looking forward, we remain committed to optimizing our franchise dealership business both through organic.

With initiatives and.

Through strategic acquisitions.

To that end earlier this week, we completed the acquisition of Subaru and Volkswagen franchises and Grand Junction, Colorado.

These acquisitions enhance our brand portfolio and complement our overall growth strategy.

And we expect to announce additional franchise.

Again at growth dealership acquisitions, and the near term as we drive toward 25 billion and total revenues by 2025.

Turning now to Echo Park, the combination of our below market pricing efficient inventory procurement logistics and reconditioning processes and digital.

Franchise enabled sales channel has allowed us to offer tremendous value to consumers.

And our topline growth reflects this growing brand recognition.

We generated all time record quarterly Echo park revenues of $596 million up 89% on a year over year basis.

And a 104% increase compared to the second quarter of 2019.

During the second quarter Echo Park achieved all time record quarterly retail sales volume of nearly 21300 units.

Up 61% year over year.

On a 2 year.

Your comparison Echo Park retail unit volume increased 69% compared to the second quarter of 2019.

We are already halfway to our <unk> network expansion goal of opening 25, new locations and 2021.

Based on our success to date and plans for future markets, We expect acre park to achieve.

<unk>, 25% population coverage by the end of 2021.

And 90% population coverage by 2025.

Further driving our expansion opportunity we have made excellent progress with our proprietary digital retail platform and are on track for a fourth quarter 2000.

And 21 launch and Echo Park.

In the meantime, we continue to drive market share gains and our existing echo part market and we anticipate our market penetration and brain and brand recognition will continue to grow rapidly over the next decade, as we expand our nationwide distribution network.

Looking at market share and more detail Echo Park has shown a consistent trajectory from launch indicating that our expansion is performing to plan.

Within <unk>, 1 to 4 year old vehicle category.

Markets with Echo Park locations opened for less than 2 years average of 5% share.

While markets with Echo Park locations opened for 2 to 3 years average and 8% share.

And markets with Echo Park locations open for more than 5 years average a 14% chair.

In addition, our below market pricing drive sales opportunities on both ends of the 1 to 4.

Spectrum, where we compare favorably on price to both new vehicles and 5 to secure of vehicles, allowing.

Allowing us to expand our addressable market.

And the longer term, we expect to continue to drive market share growth within echo part 2 and achievable target.

Of 10% of that core market of 1% to 4 year old vehicles network wide.

Which combined with the adjacent people age segments positions the business for potential volume of 2 million units annually at maturity.

With our progress to date and the continuing development of our Omnichannel retail platform. We remain confident we can reach our interim goal of 575000 units and.

And $14 billion and Echo Park revenues by 2025.

In addition to our topline results.

Continued expansion of Echo Park.

Our team remains committed to improving operating margins and managing expenses throughout the organization.

And the second quarter of 2021 total SG&A expenses as a percentage of gross profit were 62, 8%.

And 10, all time quarterly record and a 210 basis point decrease from 74, 9% and of second quarter of 2020.

Franchise segment SG&A expenses as a percentage of gross profit were just 58, 1% and the second quarter.

A <unk> hundred 60 <unk>.

At this point decrease from 74, 7% and the second quarter of 2020.

On a 2 year comparison. This represents a 19.100 basis point improvement from 77, 1% and the second quarter.

And 2019.

With this expense leverage and we realized second quarter adjusted EBITDA margin of 5.7% of 220 basis points year over year, and a 280 basis point improvement compared to the second quarter of 2019.

These results reflect the.

Tenant expense reductions we have previously communicated.

While current operating results reflect a higher gross margin environment.

Due to constraints on new vehicle inventory.

And do not expect new vehicle Gpus to fully regress to pre COVID-19 levels once inventories begin to build.

Perm, assuming normalized new vehicle GPU of $2500.

And used vehicles GP of $1300.

Without assuming additional unit sales volume or further parts and service growth.

Our pro forma franchise dealerships SG&A is expected to be and the 62 to 60.

At 3% range.

Representing a 1000 basis point improvement from pre Covid levels as a result of the permanent changes in our expense structure.

In addition to operating expense leverage and we continue to focus on strengthening our balance sheet.

63 ended the second quarter with over $600 million and available liquidity and.

Including approximately $315 million and cash and deposit balances on hand.

During the early part of the quarter as we mentioned on our last earnings call. The company closed a new 4 year 1.8.

$8 billion credit facility, which allowed us to extend our debt maturities improved our borrowing costs.

And raised our total available liquidity and full capacity.

Practice terms.

With our available liquidity resources, we believe Sonic is well positioned to continue executing on.

And our echo par growth plans, while also strategically investing in the future of our franchise dealership business and <unk>.

And to return capital to shareholders through our dividend and share repurchase programs.

I am pleased to report that our board of directors approved a quarterly cash dividend of <unk> 12 per share payable.

October 15th 2021 to all stockholders of record on September 15th 2020 of them.

In closing our all time record quarterly results demonstrate the company's continued focus on execution.

And with strong franchise dealership performance the continued expansion of echo parts of nationwide.

Footprint.

And our success and maximizing operating efficiency throughout our organization driving long term earnings growth potential.

Our strategic growth plan is based on demonstrating unique value to current and future customers through our pricing guest experience and growing nationwide.

At both Echo Park, and our franchise dealerships.

We believe that this consumer focused approach will continue to deliver strong results for our shareholders and maintain sonic and <unk> position as leaders and evolving automotive retail environment.

And before we turn the call over.

Over for your questions I'd like to comment on today's announcement that the company has initiated a review process to evaluate potential strategic alternatives.

For our <unk> business.

As detailed in our press release, working together with our advisors and our board.

And we will explore a range of value creating.

The charges for the business.

No timetable has been established for the completion of the review and allow me to remind you that there can be no assurance of any specific action or outcome.

As the review progresses, we will remain committed to executing our accelerated expansion plan for acre Park.

And I'll try this unique and competitive offering to new markets to deliver value for our guests. While also supporting the teammates that are central to cultivating the Echo Park experience.

We are focused on continuing to build upon the positive momentum and the business and remain confident and our long term growth opportunity.

<unk>.

And the review is ongoing we will not speculate on any particular outcome or make any further comments related to the process.

This concludes our opening remarks, we look forward to answering any questions. You may have thank you very much.

At this time at <unk>.

And Mike you asked a question simply press star, 1 or more of a telephone keypad at Istar Bryan for any question.

First question comes from the line of Rick Nelson with Stephens. Please go ahead.

Thanks, Good morning.

Great great quarter.

A follow up.

Yeah.

Opportunity.

I'll turn it to Gary.

And I'm curious.

From <unk>.

That revenue growth.

And.

Records and to eat.

We're not going to comment any further than the statement that both of us and the press release as well as.

And the opening statements from David.

And mostly evaluation is complete and there may be additional comments, but at this point and I just wanted to make everyone aware that that process was underway.

Kind of term currently.

Total overhaul.

So on the <unk>.

Franchise.

Hi.

Pretty meaningful expansion of mountain.

Alright.

No.

The decline.

And that's true.

Can you help.

And trial, though and script trends.

Sure.

Yes, Rick Shane why don't you take it 1 of the store. This is kind of a long weighted answer, but let me start.

And let me refer you to slide 22 of the Investor presentation that we released this morning and I think.

And that will really help us kind of answered. This question I gave you a hardie manager of a second to get there.

So as you can see on the slide when you look at weeks 1 through 9 we had really normal market conditions and normal echo product margins, but beginning and retail and wholesale prices drove the bulk rose above.

Brick market retail prices and in my career, which is 25 years doing this the market's never seen of wholesale pricing version of this.

And the snake or magnitude at all.

In early April we then decided to make a strategic decision to drive volume and market share, but also and mitigate losses by adjusting our pricing strategy.

As we move into the third quarter market conditions were now beginning to return to normal and we've returned to our normal pricing strategy that we were.

And then the first quarter.

However, we.

We do have a 40 plus or a day supply of inventory, that's driven by new store openings and traditionally run 30, 30 day supply of 20 ml from Atlanta, and taking the price point.

And so we expect margin pressure to continue through August.

But as we approach the.

End of the third quarter, we expect that type of automotive needs to begin at normalized fourth quarter margin. So we're going to look a lot like the first quarter and as a result of the actions that we've taken we do remain on track to sell of the 100 hundreds of 105000 cars that.

Debt, we told the street that we would sell at the beginning of the year.

When you look at the franchise side.

Trading and make a big fragrance and makeup of big percentage of our volume about 60% and so we're obviously trading for cars a lot cheaper and we're buying cars at the wholesale loan about 88% of our cars from from the auctions at the at the park level, where very few of much smaller percentage of our cornerstone at the franchise dealerships and that speaks of the industry.

Everybody's got a higher margins, but the exposure for Echo Park is is if we buy a lot of wholesale cars at auction.

And so and to keep of short day supply. So we're going to run income margin events. When you have an event like this at the good news is as these events have happened 1 time and my 25 years and probably have happened.

Well I mean anybody that's on this call.

Well, so it's not of concern for us as we move forward, we believe things will return back to normal and.

And getting closer to normal as we go into the month of September certainly end of the fourth quarter and as we move on into 2022.

At times.

And Joe.

Sure.

And 1% from carriers all of them.

Yes.

Pat kind of off.

And then Q3 and Q4 and we ship.

And to profitability at kind of at sort of.

Forecasts are really helpful.

And here's how you would look at it I think debt.

The losses that you see and saw in the second quarter, and theyre going to kind of be relative and the month of July.

We will get a little better, but probably still show a loss and August September should then turn positive and then the fourth quarter will be back.

And the run rates that you saw in the first quarter, so debt overhang that we have and.

And obviously have an overhang of if we werent opening some of these stores that we're buying a lot of buying a lot of inventory right now and we're just not going to adjust our strategy because of an event that happens once in a lifetime of mix just not it's not.

Much of that we're going to do at close the entire business down.

And to continue to grow and grow our share as David said in his opening comments we of our 5.

And we would of store our most mature store at our most mature markets at 18% share and the Denver market, and we're averaging really 14% share and <unk>.

Anything over 5 years, so we're not going to slow that down for a 1 time event and.

And we think we've made the right decisions there so a little bumpy road for July and August things get a lot better September.

5 year old here, and then back to normal and the fourth quarter.

From a wholesale.

Notice you have and acquisition announcement.

Today, we are able to scrape and 1 of those and a while.

If you could speak to that and.

Your appetite to acquire.

On the franchise and Scott.

Yeah, I mean look we're bullish on the franchise side of the business and the lack of folks out of the business. There are a lot of deals out there right now and so we're strategically bryan deals that fit our footprint or markets that we're going into new markets likely likely announce of Grand junction, although we're in the state of Colorado.

But there are a lot of opportunities out there.

And as David said in his opening statement youre going to see more purchases from us and the franchise side as we move through the rest of this calendar year.

Great.

And good luck.

Sure.

Thank you so much.

<unk>.

Your next question comes from the line.

And I know for Hodgkin and <unk> with Jpmorgan.

Alright, great. Thanks, Thanks for taking the question.

I know you don't want to give too much color on the strategic review by.

In the event that you know.

There is and separation.

The knickerbocker and business that might happen.

And 1 of the possibilities.

And is there any way and you can frame for us.

And quantify the dis synergies.

That would be number be.

And there.

And that it and.

And any of these color and that would be helpful and fall off.

We appreciate the question but.

We really can't comment further.

And okay, and anything quantitative thing to keep in mind.

Sure.

In terms of I shared resources, or you know auction or anything like that.

This is heath.

Again, we're not going to comment.

And on India details I can just assure you that just like every decision that we make and this company our focus is on increasing shareholder value and releasing as much value and this company as we can and so that's a driver of every decision we make.

But other than that we just won't get into details of that analysis.

And I have to try.

Yeah.

[laughter].

And of 2 million units at <unk>.

Maturity.

What kind of EBITDA margin profile.

Canada business around that.

And <unk>.

And while our summer and low single digits.

And youre still ramping up store and at that point Sir.

And any color on what kind of EBITDA margins or profitability of the business can be at maturity.

Yes, youre going to see you're going to continue to see expansion of that in particular based on what we projected at 2025.

And that's based on and Imagers.

So as we run those out towards maturity and you get more mature store base, you'll see continued expansion beyond what that is there.

And not quantified what that opportunity of upside is but I think.

At the basis for Echo Park is that we're able to scale and leverage those expenses.

Radically better and more efficiently than we are at the franchise side and so we.

Should see meaningful upside to EBITDA margin as you get north of 575000 units and.

And continue to mature at the store base.

Daniel point, we always talked about at all.

Expenses at Echo Park of more fixed and so obviously.

And thats going to drive a higher EBITDA margin as we scale.

Got it.

Any color on like what the <unk>.

George stores, and what kind of EBITDA margin bear and honestly Keith.

Taking into account the 1 time hit in this quarter on GPU, but.

And.

And.

Germany.

Okay.

So and it's the best way to look at it as SG&A, it's going to be and the <unk>.

Mid 50% to 60% range somewhere and that somewhere in that ballpark from a mature store.

Got it and you can go back okay. Thank.

If you go back to what our Q most of Mr.

And our markets Denver, and Dallas did in 2019 free COVID-19, but each of those markets to $12 million and pre tax.

And so if you think about them running at AR.

And here at <unk> hundred 1400 units a month on average so if you look at it from that perspective, and your EBITDA is gonna be somewhere north of about $12 million into that revenue base.

So that and growing that timeframe to share and those markets was lower Denver's running last month, we part of the month of June we ran 18% market share. So it's a much more.

And more mature market now and we don't know what net share can go.

And we're calling out 10%, which is driving the $2 million.

But.

At our stores all of our at 5 years at 14%. So Theres certainly upsides of that number and I think that's a critical thing to think about as we move forward.

Got it got at this 1 last 1 and on the SG&A side.

And there was some color on the franchise.

The franchise business.

Right.

And in the context of like what Gpus could look like.

Just looking at at the second quarter number of 58% for franchise and its unit gross.

It looks like.

The leverage of OIBDA of dropped through to the bottom line from the gross.

Gross profit increase.

Just seems to be much higher.

For U verse, and what you've seen at some of the peers.

Like 75% and 80% drop through of that gross profit benefit.

Is that or is there something different or is are.

Are there any changes that you had made.

Over the last year, when you were laying off.

Looking at him.

And staff that active.

And any change in terms of the fixed source and variable comp model or anything of that sort of.

That could lead to.

And this kind of drop through.

Just curious of share any thoughts there and that'll be all Inc.

Yeah.

And businesses a couple of things out of missed a little bit of at but I just wanted to David moving on it very well and the opening of comments.

First of all at a high level I think we had actually and guidance in February of around 73% for 2020.1.

For the year were running.

And net 60.

67% and.

And we did this year, we absolutely expect that to be our estimates and a growth at that level and not going higher.

We look forward and David articulated and kind of normalize what we expect to see in 2022.

And we still believe the GPU is going to be elevated.

And yet on new normalized of used.

We are looking at of 62% and that includes and go Park and.

And the franchise business.

And so as the Echo Park.

Matures, we can actually improve debt debt.

And even better than the 62% range.

<unk>.

A couple of things that are driving the throughput and we've got if you look at our productivity on ourselves and so just for example.

Used yourself at 12 units per month per associate at before.

And for these cuts will be put in place and these efficiencies and now we're running 18.19.

And so that's a fundamental change that you can see even at these new levels we're maintaining.

And so that's a big part of it that is.

Changes structural changes that have been made and organization and the other 1 is centralization of advertising of huge component to our SG&A that is a.

Structural change, that's allowing that throughput to happen.

We're spending a lot less on advertising and is even more effective and so those of 2 of the biggest set of.

What structural changes are driving that throughput and it's not just of growth driven against each of them. It's a gross and expense driven at that and we made a big deal out.

All of that.

And Covid can we really did take a lot of expense out of this business I think we created and $4 million annually. That's come out of it is running higher than that and.

And it's permanent as David said in his opening statement and so when Youre looking at your models and forecasting for next year, you really got to take that into consideration in terms of in.

How do you look at the business and then the Great News there is and I don't know if you mentioned this or not.

And our California market is really underperforming in a big way compared to the rest of the markets. The market is just not come back as fast due to COVID-19. So if you look at our new car volume and California.

And the rest of our stores.

And basis points used car volume down by 4500 basis points fixed at 600 basis points total revenue was down about 1300 basis points and gross profit down by 1000 at California opens back up it's just going to it's going to be fantastic for us we've got a big chunk of our stores and our business out there and so and that's going to further enhance the growth.

In terms of audio, but it's also going to continue to lever of the SG&A percentage and space. It really is a tripling from both sides and the great News is we can have the new car margins return.

Think they're going to return to pre COVID-19 levels of gear and I think the manufacturers are doing a smart job at keeping inventories tight and they'll continue.

To do that even as we move forward.

And if you do model of $2500 PBR, which is still well ahead of where we work because of it you get the cap of the gross growth and you get the big expense for decades of of permanent again and place and Thats just going to keep the SG&A coming down then you add on top of that the performance at Echo Park getting back out of this.

And it's crazy.

Crazy inversion time that we went through and.

And the pictures.

And it's really really good for us and that's why.

This is David and Thats why I noted.

But.

Filming.

No additional sales.

Sales volume and.

Or or.

Turning to parts and service growth.

And conservative and they said this.

And our projections.

I think thats when I look at some of the models I've seen from some of the.

And also on plan and sales side from.

Our perspective, I think what is being missed is the power of that SG&A reduction staying in place also think.

Some people are assuming.

And that we go back to pre Covid, Gpus, which from our perspective and <unk>.

Jeff mentioned, we think that you will be elevated continues.

And at least for now from Harper.

Our company specifically.

The models are not giving echo park and <unk>.

And as we've mentioned many times 2022 is the tipping point of Echo Park, that's when we're going to be opening less stores and we have.

And.

And so I think when we look at some models and really help job of ours.

Those of the things I think at missiles.

Yes.

Credit.

Alright.

And we can hear you go.

Alright.

Yeah.

Thereafter.

And you'd cut off.

And really the transfer price hikes from color.

And again.

And at the store openings.

Yes, I'll reduce space.

We look at some of the models from some of our buy and sell side analysts and when it doesn't really guide for our perspective, the things that I think are missing at the.

And understanding.

The permanent reductions.

Reductions that will continue regardless.

And that of any increase in volume number 1 number 2 the assumption that new GPU goes back at the manufacturers get back to the 60 day supply of 65 day supply and.

And the new GPU goes back to 2019 from our conversations as Jeff mentioned and Thats not going to happen and those will be elevated continuing.

The impact of California at lease specifically for us and when it's going to happen second half of 'twenty, 1 and into 2022.

And again Echo Park Echo Park is.

That 2022 was our inflection point of tipping point, where we.

We are opening less stores than we have mature.

And as we've stated before we believe that is when the profitability, even though we have at today is sort of still an exponentially because you've got assuming of mature stores and points.

Got it great. Thanks for all of the color our underlying.

You bet. Thank you.

Your next question.

Question comes from the line of John Murphy with Bank of America.

Good morning, guys you answered a lot of my questions, but just 1 or 2 more.

You mentioned on <unk>.

And 2 million units at sort of a target for Echo Park at maturity and Jeff you were saying there are some markets and that is based on 10% from.

And my market share on your.

And your target vehicles, but there is some market share of $14.15%.

I mean could this be the kind of thing where this is not $2 million at $3 million and then if you decide to expand and the ice at the iceberg of maybe slightly older vehicles.

And our expanding the offering that you might be something.

And a larger than that I mean, how are you.

Are you pegging this 2 million of other than just 10%.

Whats the opportunity beyond maybe that yes.

Yes, I mean, if we take the 5 year average of 5.

Your old store average right now at 14% so the number is bigger than $2 million and.

Yes, it could be 3 million $4 million.

At the end of the day.

We're always looking to take the inventory process that we have at Echo Park, and the pricing model and to expand net I would say.

Think of it differently I don't think we expand and the 5678 year old cars, because it brings a lot of complexity.

To the model that really doesn't doesn't fit our model adds cost and things of that nature of that just doesn't fit the model.

Significant what we might think about is instead of the traditional echostar less is crazy time traditional Echo Park average retail price being $20 to 21000, and you might look at something like uptake and extend that to a 35% of $40000 car and so because that's not that's not an average retail selling price and we come anywhere near.

And we're look we're always looking at how can we take this great model that we have the efficiency that we have at the model, which is really exceptional.

And 1 of our client I think and our industry and expand that to grow echo part of further level. So yes. The $2 million is of good safe number for us because we know we're going to be above 10% and terms.

Per share and we understand what our defined market is it's a smaller slim line, it's not the traditional $40 to 43, new of course being sold every year.

And as a smaller lane, but we can out of much larger percentage of that waned and what some of our competitors are talking about of the overall market and so.

I think you were thinking right.

And and it's absolutely the way that we're thinking.

Okay.

And to think about because of our pricing strategy part of that $2 million, which could be a lot.

Higher numbers, we're pulling that 5 and 6 year old buyer and.

The 1 to 4 year old because we of price.

So load at nano they can afford of 1% or rather than a 5 to 6 and at our Tam, but also important for new car buyers because I've got a 1 to 4 year old car with a condition reported of 1.5.

Good day.

And as good as a as a new path and so and pulled from that 13 million.

And as well so we feel like we're going to have some.

Migration from those other populations into the 1 to 4 because of the way we brought and we do today, that's not part of our volume today and we expect at the continued to expand with our pricing model as we move forward, we see that happening and Thats part of the big share.

Sure.

And like I quoted for Denver that we've got and 18% of market share there and the 1 to 4 category, but it includes some 5 and 6 year old.

Vehicle buyers.

The price is so low and it includes some new car buyers because of 40% product price flow nuclear.

Traditional of number so all in.

A great opportunity for us and again I think you're thinking right.

And then just.

A second question I'm not sure you can.

And if you're gonna be willing to answer, but I mean, you said, 88% of Echo Park.

Units are sourced from auction.

And will that be the case over time and are the other 12% flowing from your franchise.

<unk>.

Stores, and just to understand that inventory I mean at sort.

And 2 million units you start getting into.

And simply big numbers.

Big chunk of the market timing into the first and strategy and his team overtime and Echo Park.

It's really not of strategy at the end of the day and we buy as many cars off the street as we want but just think about it it's not a lot of custom.

Customers trading down of 1 or 2.2 year old car and there is still upside down and have negative equity whatever it's just not as big of a swimming pool as you might see for our franchise stores are some of our competitors, where we're selling zero to 10 year old cars and the average car and on the road is 8.9 years old and we tried to those stores all the time that drives the margin that you see on the franchise side.

So yes.

I think can expand if you look at me first started that number was 67 and 8% we've got at up to 12%.

And we've got I think we have some opportunities there, but I don't think it's going to be as big of a percentage of overall of our.

Our sellable inventory as you might see at some of our competitor set or even our own franchise stores and.

And we really don't we don't take.

Cash from our franchise stores and move to Echo Park, we do the other way cars that don't fit the Echo Park model, we send to our franchise stores and they benefit greatly from that.

But it certainly every day at a topic of conversation for US is how do we increase of 12% because the margins are significantly better.

On a street purchase and they are buying Bryan.

And of course, the auction and 1 other point, we're not hear people all the time talking about not being able to buy inventory. We don't have we've never had a problem by and inventory. We haven't had a problem. When everybody says inventory is tight right now we don't have a problem by and inventory you got to pay for it and thats going to adjust the margins, but at what we're not going to let that do slow us down.

Take care of our business is strong enough now that we're going to continue to power through and when you have events like we had over the summer here.

It just is not it's not a big enough events of worry us we're going to continue to power through drive our market share because we come at the other side of this we're going to be a lot stronger for it. So we don't have any problems getting getting.

Inventory I want to make sure that I get that point across.

And this is David and.

Something to think about it and related to that is yes.

We grow our brand our <unk> brand and market share you can see that our market share increases, but so do the number of.

Quality trade and so we.

And at actually ship at Becker part model that and go in and we sales. So we definitely see that those numbers growing.

Okay, and then just lastly, I mean, just a core part of the business, which is still very very very good business outside of <unk>. I mean, do you have any designs about where that lands and I mean are you, giving us an idea of 2.

Get and units, but obviously, there's some upside there and Echo Park, and where do you think that the.

Core business of core franchise business.

<unk>.

Over time, and how you think about where that decade.

Pop out or bring you go when you are making acquisitions.

There is a number of ways to answer that kind of.

Jeff will have some comments.

But at that.

The franchise business is still extremely fragmented.

And this country and so there is still tremendous opportunity for growth and that area, which.

Alluded to that and our opening comments.

And we just never been in a position to grow right. We just havent had.

And then on liquidity, we've been sort.

Coring up our business and this teams.

Team's been together.

Since the end of <unk>, and so and so we positioned the company now from a liquidity perspective, we can kind of do what we need to do and to grow and the franchise business and continue to grow at gold bar and.

So now youre going to see us drive in there.

Set at and the opening we've got more franchises coming we're going to grow the business. It's a great business like you said, it's highly profitable, we really have our house and order.

When it comes to our liquidity and he can comment on that here and just a second but also from an operational perspective, the turnover from our general manager turnover.

<unk>, 5% or less at the company is really strengthened.

And its performance our playbook processes are really have matured and so it's time to grow the business and more and are positioned to do that now and theres been some some deals and just wanted to emphasize too that.

We absolutely look at that at the Aro.

Of all of our investments and so there have been some deals that we passed on that just did not represent a great investment versus and most of them and Echo Park.

And we think cash.

Going forward, we're seeing more and more.

Opportunities to get at.

And for great acquisitions that at that are accretive and will add.

A lot of value for our shareholders and it.

And you look at from a balance sheet and think about.

Leverage ratio of is extremely low.

Our credit profile is improving from the agencies on a daily basis. So we've got readily available access to the capital markets and <unk>.

Additional needs of necessary.

I mean would it be staged of fond of saying and you look at Autonation and about 2% of the market at Lithia make and acquisitions pretty aggressively talking about getting at about 5% of the of the market.

Would you ever any cash.

Put you on the spot right now because I'm sure you might have some ideas about this certainly at all.

Of where you can be as a percentage of the new market Bryan just sitting here, saying, hey, and can be 10% of the addressable market I'm going after and and Echo Park I mean could you say 234, 5% and the new vehicle market is that something you'd be willing at.

Put out at some point.

Or is this going to be just more opportunity and genetic and youre going to roll.

As you see fit over time.

And look we just add back and the pool right and so.

That's a number I'm sure that will come with.

And.

Because there's just a ton of buying opportunities out there right now and new sales and kind of respond and you'll see us do at the same and particularly between now and.

Roll up here and so I.

And I think at some point in time, we can define that.

And.

Really kind of start to hit our stride from an M&A perspective and say.

Give us a few quarters and we'll begin talking a little bit more about that.

As we as we kind of define how many of these stores looking at buying and where we're.

And the end of the users.

Great. Thank you very much guys.

And you back here at Baxter.

And then you asked a question press Star 1 on your telephone Keypad. Your next question comes from the line of Mark Jordan with Jefferies.

Good morning, Thank you for taking my questions.

I guess following up.

We're ahead of need and my question can you kind of talk about multiples, you're seeing now and how they compare and historical trends.

<unk>.

Theyre different all of those it really depends on the brand and the markets that you're in but I mean, if youre going to go out and buy a <unk>.

<unk> store youre going to pay north of a 10 multiple and.

But if you are buying.

Some of the domestic or imports.

5.5 and a half 6 more of enough and that ballpark we're selling.

And it really does depend on the market the city and there's just so many different.

Issues with narrowing it down on a kind of a nationwide basis, there's a number of different at all over the place.

And I think you would hear that from our competitive set as well.

Okay great.

And I guess following up on the back of part GPU question from earlier.

And I'll just kind of corner you took some pricing up and I think above market to kind of offset to some of those wholesale headwinds.

So when we get back to more.

More of a normal sourcing environment and this may be kind of an opportunity and are to rethink the pricing model and maybe just be a little bit above where you have been historically for Echo Park.

It's an interesting conversation because of that what it showed and this timeframe is the strength of the brand.

Because we got as high as of $108 and 10% of the market.

And so I'm trying to balance the loss and maintain our our numbers in terms of share.

So down the road at the brand strengthens and the gaskets to experience more than just price, but they get to experience the great experience that you get.

Coming into the store and then we introduced and the fourth.

During with digital.

Retail platform, which dinner and our new websites, we're just going to be fantastic.

There is definitely going to be opportunity for margin expansion, we have not defined that yet, but you will continue to see us stay very aggressive versus the market thats, our bread and butter.

Correct.

And net 2 could we go from 2500 of 3000 below market down to 2000 and below market and still get the same kind of market share that we're seeing today, we will definitely play with those numbers as the brand expands across the country and becomes a nationwide brand and.

I might have Steve and just Tom at quickly.

All.

All of our digital retailing platform, yes, sure. So we take a 2 pronged approach to e-commerce here at Sonic automotive.

In parallel we are improving Echo park dot com and building our proprietary digital retailing tool our proprietary digital retailing tool is on track to launch in Q4 of this year, we have a big.

And over 50 people of designers developers and product owners and we're working on that right now.

And that's really set to deliver a true end to end experience for the consumer without having a lot of human intervention and like a lot of our other other tools out there have.

In parallel we are improving Echo park dot com and so that gopro debt.

Team visits are up 156% versus a year ago leads are up 111% versus a year ago and our car sold from our websites were up 74% versus a year ago, So and we're improving Echo Park Dot Com every single day.

And we've actually for the first time in May and in June and July we actually generated more leads from echo.

Dot com from than we did from our third parties just shows the strength of the of the website and also shows the strength of our of our brand.

Great. Thanks, Steve.

We have no further questions at this time I will turn the conference back over to management for any closing remarks.

Thank you everyone for.

Parked against and have a great rest of your week.

Thank you.

Ladies and gentlemen, and that will conclude today's call. Thank you all for joining you may now disconnect.

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