Q4 2024 Sonic Automotive Inc Earnings Call
Good morning, and welcome to the Sonic automotive fourth quarter 2024 earnings Conference call.
This conference call is being recorded today Wednesday February 12 2025.
Presentation materials, which accompany management's discussions on the conference call can be accessed at the company's website at IR Dot Sonic automotive Dot com.
At this time about 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 and subject to a number of risks of uncertainties that could cause actual results to differ materially from the statements made.
These risks and uncertainties are detailed in the company's filings with 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 reconciliation tables in the company's current report on form 8-K filed with the Securities Exchange Commission earlier today.
Speaker Change: I'd now like to introduce Mr. David Smith, Chairman and Chief Executive Officer of Sonic Automotive Mr. Smith, you may begin your conference.
Speaker Change: Thank you very much and good morning, everyone welcome to the Sonic automotive fourth quarter 2024 earnings call as he mentioned I'm, David Smith, the company's chairman and CEO.
Speaker Change: Joining me on today's call is our president Jeff Dyke, our CFO Heath Byrd.
Speaker Change: I Echo Park, Chief operating Officer, Tim King and our Vice President of Investor Relations, Mr. Danny violent.
Speaker Change: We'd like to open the call by sincerely thanking our amazing teammates for continuing to deliver a world class guest experience for our customers.
Speaker Change: Echo Park automotive teammates have once again earned the top spot as the number one pre owned automotive dealer and guest satisfaction ranked by reputation dot com.
Speaker Change: And our Sonic automotive franchise team mates set a second consecutive annual record in customer satisfaction scores.
Speaker Change: Our teammates are truly living our sonic purpose to deliver an experience for our guests and our teammates that fulfills dreams enriches lives and delivers happiness.
Speaker Change: We believe our strong relationships with our teammates our manufacturer and lending partners and our guests are key to our future success and as always I would like to thank them all for their support and loyalty to the Sonic automotive team.
Speaker Change: I would also like to welcome our newest Sonic teammates from our fourth quarter acquisition of the remaining 50% joint venture of North point Volvo in greater Atlanta.
Speaker Change: In addition to acquiring Audi New Orleans.
Speaker Change: And motorcycles, a Charlotte and Greensborough collectively.
Speaker Change: Collectively we expect these acquisitions to add approximately $145 million in annualized revenues to our business.
Speaker Change: We'd also like to announce that we are back in the market and actively pursuing major acquisitions of new vehicle franchises in 2025.
Speaker Change: Turning now to our fourth quarter results, our GAAP EPS was $1 67 per share and excluding the effect of certain items as detailed in our press release this morning <unk>.
Speaker Change: Adjusted EPS was $1 51 per share a 7% decrease year over year.
Speaker Change: Fourth quarter consolidated total revenues were an all time quarterly record up 9% year over year, while consolidated gross profit grew 6% and consolidated adjusted EBITDA increased 5%.
Speaker Change: Moving now to our franchise dealership segment results in the fourth quarter, we generated all time record quarterly franchise revenues of $3 4 billion.
Speaker Change: Up 12% year over year.
Speaker Change: This revenue growth was driven by a 13% increase in new retail volume.
Speaker Change: 5% increase in used retail volume and a 10% increase in fixed operations revenues are.
Speaker Change: Our fixed operations gross profit and F&I gross profit also set all time quarterly records up 12% and 14% year over year, respectively.
Speaker Change: With the acceleration in new vehicle sales volume in the fourth quarter.
Speaker Change: The vehicle days supply decreased to 46 days down from 57 days at the end of the third quarter.
Speaker Change: Same store new vehicle GPU was 3200 $41 up.
Speaker Change: Up sequentially from the third quarter due to our luxury brand mix and in line with our previous guidance to exit the year in the low $3000 range.
Speaker Change: On the used vehicle side of the franchise business.
Speaker Change: While we grew volume by 5% year over year supply constraints and consumer affordability remain a challenge.
Speaker Change: Our used inventory day supply within our target range at 31 days and used GPU was stable sequentially at $396 per unit on a same store basis approaching normalized GPU levels in this supply environment.
Speaker Change: Our F&I performance continues to be a strength.
Speaker Change: With same store franchise F&I GPU of 2400, $27 in the fourth quarter up 4% sequentially and year over year.
Speaker Change: The continued stability in F&I at these levels supports our view that F&I per unit will remain structurally higher than pre pandemic levels, even in a challenging consumer affordability environment.
Speaker Change: Yeah.
Speaker Change: Our parts and service or fixed operations business remains very strong with a 12% increase in same store fixed operations gross profit in the fourth quarter.
Speaker Change: This strong growth was driven in part by higher levels of warranty repairs combined with the effects of our initiative to increase technician head count by 300 net net technicians during 2024, we.
Speaker Change: We are very excited to announce that we exceeded this challenging goal, adding 335 net technicians during 2024, which we expect to set the stage for strong fixed operations growth in 2025, as we continue to focus on technician hiring and retention.
Speaker Change: Turning now to our Echo Park segment.
Speaker Change: Fourth quarter, adjusted EBITDA was $4 $2 million below our previous guidance for $7 million to $8 million in Echo Park adjusted EBITDA.
Speaker Change: This shortfall was driven primarily by a $200 sequential decline in used GPU from the third quarter as a result of building inventory a little bit too quickly exiting the third quarter, which led to aging inventory and depreciation risk amid.
Speaker Change: It's a seasonal slowdown in used demand.
Speaker Change: In response, we have taken steps to rightsize, our inventory at Echo Park heading into the first quarter and expect for used GPU to improve sequentially.
Speaker Change: For the fourth quarter, we reported Echo park revenues of $506 million down 9% from the prior year.
Speaker Change: In fourth quarter record Echo part gross profit of $49 million up 14% from the prior year.
Speaker Change: Echo Park segment retail unit sales volume for the quarter was approximately 16700 units down 5% year over year.
Speaker Change: On a same store on a same market basis, which excludes closed stores.
Speaker Change: <unk> revenue was flat gross profit was up 29% and retail unit sales volume increased 4% year over year.
Speaker Change: Oh part segment total gross profit per unit was $3004 per unit up $606 per unit year over year, despite lower than expected front end used GPU.
Speaker Change: Echo Park used vehicle day supply of finished the fourth quarter at 38 days compared to 33 days at the end of the third quarter.
Speaker Change: Our unwavering confidence in Echo Park long term potential has allowed us to weather the challenges in the used vehicle market in recent years and we believe our performance in 2024 demonstrates the tremendous opportunity for this brand.
Speaker Change: Full year 2024, adjusted EBITDA was $27 $6 million.
Speaker Change: From a loss of $83 million in 2023.
Speaker Change: And the Echo Park segment achieve profitability on a pre tax basis in 2024.
Speaker Change: We believe these results validate the strategic adjustments, we made over the past several quarters and we look forward to resuming disciplined long term growth record part as used vehicle market conditions continue to improve over the next several quarters.
Speaker Change: Turning now to our power sports segment <unk> for.
Speaker Change: For the fourth quarter, we generated revenues of $36 million gross profit of $7 $5 million.
Speaker Change: Segment, adjusted EBITDA loss of $1 million, which was in line with our expectations for a seasonally lighter fourth quarter.
Speaker Change: We continue to focus on identifying operational synergies within our current power sports network.
Speaker Change: All fine tuning our operating Playbooks.
Speaker Change: While we are taking a disciplined approach to expansion in this segment, we remain optimistic about the future growth opportunities in this adjacent retail sector. When the time is right.
Speaker Change: Finally, turning to our balance sheet, we ended the year with $862 million in available liquidity, excluding unencumbered real estate.
Speaker Change: Including $384 million in combined cash and Floorplan deposits on hand, we.
Speaker Change: We continue to maintain a conservative balance sheet approach with the ability to deploy capital strategically as the market evolves.
Speaker Change: Additionally, I'm pleased to report today that our board of directors approved a quarterly cash dividend of <unk> 35 per share payable on April 15th 2025.
Speaker Change: To all stockholders of record on March 14th 2025.
Speaker Change: As you can see in the Investor presentation. We released this morning, we have once again provided certain limited financial guidance for 2025.
Speaker Change: Note that there are many variables that may affect our business in 2025, including the impact of potential terrorists shifts in electric vehicle production and demand and changes in the interest rate environment and consumer affordability among.
Speaker Change: Among others.
Speaker Change: In closing our team remains focused on near term execution and adapting to ongoing changes in the automotive retail environment and macroeconomic backdrop.
Speaker Change: While making strategic decisions to maximize long term returns.
Speaker Change: Furthermore, we continue to believe that our diversified business model provides significant earnings growth opportunities in our Echo Park and power sports segments that may help to offset any industry driven margin headwinds, we may face in the franchise business.
Speaker Change: And as I mentioned earlier, we look forward to announcing some major new vehicle franchise acquisitions in 2025.
Speaker Change: We remain confident that we have the right strategy the right people and the right culture to continue to grow our business and create long term value for our stakeholders.
Speaker Change: This concludes our opening remarks, and we look forward to answering any questions. You may have thank you.
Speaker Change: Yeah.
Speaker Change: Thank you when I became dusting of question and answer session, if you'd like to be placed in the question queue. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue. You May press star two if we'd like to move your question from the queue.
Speaker Change: For participants using speaker equipment, it would be necessary to pick up your handset before pressing star one.
Speaker Change: One moment, please while we poll for questions.
Our first question today is coming from John Murphy from Bank of America Airlines that lives.
Speaker Change: Good morning, guys David.
Speaker Change: How're you doing.
Speaker Change: First question on the acceleration in M&A.
Speaker Change: You mentioned that they thought multiples were a little bit high valuations were a little bit high so they they were slowing down and we hear that from some folks but like you. We hear some folks that are kind of leaning into this so I'm just curious what you're what you're seeing in the market. What do you think of evaluations and there's many ways to play the game in regions and strategies to go after so I'm just curious what youre seeing this might be somewhat.
Speaker Change: And what really the target is for your acquisitions.
Jeff Davis: This is Jeff Davis.
Jeff Davis: But if I can so this is Jeff you know at the end of the day.
Jeff Davis: Our background and our strength sits in luxury we're seeing a lot of opportunities on the orange reside.
Jeff Davis: Across the country are multiples have actually gotten better from our perspective not worse, we're seeing more deals come across them. Aside for 20 years, we're seeing more deals come across.
Jeff Davis: Desk now than we ever have and we're in a great position, where green to buy and just about every single manufacturer that we have.
Jeff Davis: Certainly across all the luxury import lines.
Jeff Davis: And.
Jeff Davis: So it's we're set up for that we've got a great balance sheet, we've been saving our dollars.
Jeff Davis: We've got the liquidity to go out and do this without adding debt to our balance sheet.
Jeff Davis: And so it's a great opportunity for us and we're ready for that our team is ready for that we don't have to add any overhead. So it's just the immediate addition of EBITA and the lowering of your SG&A.
Jeff Davis: And it's the right thing to do for US at this moment, we've got a lot of deals in the Hopper and I would expect us to be announcing deals here in the coming month or two.
Jeff Davis: Yeah, and this is David mentioned just to piggyback on Jeff's comments about you know our teammates in the in the record.
Jeff Davis: Customer satisfaction scores that Ive mentioned earlier have a lot to.
Jeff Davis: Have some opportunities on the table that that are.
Jeff Davis: Our competitors don't have so it's a it creates it.
Jeff Davis: A strategic advantage for us to have that performance.
Jeff Davis: Really appreciate our teams.
Jeff Davis: Efforts there.
Jeff Davis: And just I'm sorry, just to follow up other than luxury is there a specific sort of region, you know or strategy that youre going after size size size and scale large dealerships lower smaller dealerships I mean whats.
Jeff Davis: Or is it sort of all comers in the luxury side well I mean, I would tell you. It's Jeff again, I would tell you a luxury and import and you know there might be a domestic deal here or there, but but from California from sea to shining sea there deals across.
Jeff Davis: All markets on the East Coast, Alabama, Florida, California, Texas, and we're looking at multiple deals have multiple deals in the hopper and in each of our big markets and you know it rounds out where we might not have a luxury brand in particular market allows us sort of round out our package for that market for our consumers.
Jeff Davis: It's there's a lot of opportunity out there John and we're going to take advantage of that here in 'twenty five that we've particularly you.
Jeff Davis: You know love growth markets.
Jeff Davis: And we're taking a look at in some markets. We've looked at recently or are not in growth areas and we decided to pass on some deals there, but it's something to keep in mind, Jeff is from Texas, So you're always trying to build.
Jeff Davis: Some deals have Texas up there's nothing wrong with Texas right.
Jeff Davis: Alright.
Jeff Davis: On on.
Jeff Davis: New Gpus, which is that you know the hottest topic of when theyre going to normalize or where they're going yeah. I. Appreciate the outlook you gave and in the slide deck, but maybe did you give a service some color of how big a weight or drag evs have been on Gpus and hopefully as we get through you know clearing out some of that that inventory here and you don't get <unk>.
Jeff Davis: <unk> Ah restocked to put it politely with with more Evs, you know what kind of relief that can create on new Gpus, well first of all I sure as Hell Hope. That's the case you know, we don't want to get restocked with all of the Evs and yes, you're exactly right they need to do a much better job of managing their day supply across the board Nowadays supplies came down in the fourth quarter.
Jeff Davis: Because volumes went way up but let's see what happens in the first two quarters of this year and particularly against the domestics, but I think it's about a 400 dollar drag for.
Jeff Davis: For us and that needs to go away that were heavily offset the reduction in new GPU and it's really I mean, a big drag on the West coast.
Jeff Davis: In particular in the luxury brands.
Jeff Davis: We just we got to do a better job as an industry and the manufacturers got to do a better job of managing their electric vehicle output.
Hum along with what the consumers are willing to buy.
Danny: And that's something that's just really incredibly important is going to become even more important as we go through this year and hopefully you know the new government and their focus will give us a little relief there and John This is Danny.
Speaker Change: One more point on that that's part of that wide range. The 2500 to 3000 of new GPU, we guided to for 2025 is the variability in N. D V. The good news is that we finished Q4 with about 10% of our inventory mix being electric vehicles on 11% sales again were a little higher sales penetration in the industry because of the luxury and.
Speaker Change: The exposure, but that was down from 14% of our inventory mix at electric vehicles at the end of the third quarter. So while we didn't get the benefit of an improving headwind in E. D. G. P. You read at least right sized and aligned inventory levels as of now whereas at the end of the year with what our sales rate is so that's a big step in the right direction and don't forget the.
Speaker Change: We were heavily incentivizing evs right now so you probably have a little false positive in terms of the amount of volume that we're doing in the country right now.
Speaker Change: You're being political on a false positive there yeah yeah.
Speaker Change: Yes.
Speaker Change: So just just just real quick lastly on Echo Park things are turning the corner here what are the kpis or the things that you need to see internally and potentially externally to turn the tap back on for for store openings.
Speaker Change: Want to understand where that goes.
Speaker Change: Yeah, So I'll, let Tim talk a little bit here in a second but no look we want to get through this year I think it's really important to watch.
Speaker Change: Affordability continued to drop or buying cars in the auction lanes and the 23000 to 23500 range, we're buying more of a percentage of our cars off the street. We're testing some things to see if we can buy even more off the street and as prices come down and affordability comes back we're going to start opening stores. It is our intention to begin opening stores first.
Speaker Change: Quarter second quarter of 26, well, that's how things are going right now should that get better from an affordability perspective, maybe we could pull that up a little bit as you know we already owned real estate, we already have facilities. So it's not going to be that big of a deal for us to start opening stores. There is a big deal, though to wait and make sure. We're very mature how are in.
Speaker Change: When we open those based on what's going on in the marketplace and we got a little bit out of hand in the in the third quarter with the level of inventory that we had going into the fourth quarter. Our system did what it's supposed to do it right size things cost us $200, a copy and that or we would've been in the $787 million to $8 million range in EBITDA. So we've got that all corrected in <unk>.
Speaker Change: Margins have returned to normal here in the first quarter, Jim anything you'd add to that.
Speaker Change: Well I mean, certainly we had to make the adjustment in the fourth quarter, we know what it cost us, but we're going to benefit from that in the first quarter, because our inventories were right sized going into the first quarter and John as he just add the external factors are obviously, we've all been talking about you know the used car supply is going to hit a bottom in theory in 2025.
Speaker Change: I think the second half of 'twenty, five and going into 'twenty six will be back on the upswing and that also is a perfect for expenses that go for them.
Speaker Change: Totally I mean, John we opened we opened a store in Houston, we closed a smaller store and opened a bigger store in Stafford in Houston, Texas and it just shot out of the gates.
Speaker Change: It did had a great opening it's just rolling this month should do $3 50 to 400 cars and maybe close to 400, which would put it in there is our second or third largest store automatically so big markets. The big store all that's working as we as we had hoped for but just want to see the.
Speaker Change: The pricing continued to drop a little bit here lease returns coming back those things, it's all going to help and benefit Echo Park. If the manufacturers continue to not be able to help them sell from a new car day supply Echo Park is going to win and win in a big way.
Speaker Change: Thank you very much guys.
Speaker Change: Yeah.
Speaker Change: Thank you next question is coming from recycled stuff from JP Morgan Your line is that life.
Speaker Change: Oh, Hey, thanks for taking the question just had a quick follow up on ankle Park.
Speaker Change: Fourth quarter Hum.
Speaker Change: I appreciate the comments around like the inventory.
Speaker Change: Liquidation of happening there you know hurting the grosses, but I was surprised to see.
Speaker Change: Volumes might do better I mean, you know some of them.
Speaker Change: Your peers, you know like Carmax Carvana more independent used car dealers.
Speaker Change: I've put up pretty good numbers for November December.
Speaker Change: I'm curious why we did not see that trend that I called park. It wasn't just you do just lack of like younger car supply anything else that you can point to.
Speaker Change: And then I have a quick follow up thanks.
Speaker Change: I mean look on a same store basis, we grew at four 5% somewhere in that ballpark.
Speaker Change: Kind of right along with what our franchise stores, where I look I think there's an opportunity for us to grow to grow more than that.
Speaker Change: Hum the over aged inventory took a little bit of focus from us theres, some marketing things that we could've done a little bit differently.
Speaker Change: And I think we'll you'll see that happened in the first quarter.
Speaker Change: It wasn't a bad fourth quarter, we projected at the beginning of the year that first and third would be very similar and second fourth would be very similar from a volume perspective. They were so we'll see you know it wasn't a bad quarter, but at the end of the day.
That aged inventory or the potential for aging inventory and which is what we had cost a little bit of a slow down for us and we focused on that got that cleaned up and as we said a minute ago, our as Tim said.
Speaker Change: We're rolling in the first quarter and it should be it should be a really nice first quarter.
Speaker Change: Got it got it no. That's helpful clarification, and then just a follow up on parts and services.
Speaker Change: You know you're doing a great job, increasing technician valves to 'twenty 'twenty four I would've expected you get the full benefit of that you know you know in 2025, you know like at least you know the hiring that took place in the second half of 'twenty 'twenty four.
Speaker Change: It looks like you're you're going to add more technicians again in 2020 five you have some easy comparisons from PTK and <unk>.
Speaker Change:
Speaker Change: I was curious like if it's a mid single digit growth guide you know just some conservatism on your part.
Speaker Change: I would've expected that to be much higher you know just give him you know.
Speaker Change: Dominic surround technicians in D. C D K comps, so I'm not going to give you everything right off the bat there.
Speaker Change: Yeah.
Speaker Change: You look at the end of the day are mid single digits is kind of what we're guiding to but there's upside. There's no question. When you look at the number of technicians that we've hired them. We're very excited about that I got to keep them all but we've got plans in place to do that and as you can see that's really paying off.
Speaker Change: Growth that we saw in the fourth quarter, we had an amazing January in fixed operations. If that carries through what you. Just said is going to be accurate and we're gonna have a little better a fixture than probably what were projecting but it does get tougher as the year goes on so you know it'll get tougher in the fourth quarter, because we were a little bit at full strength in the first fourth quarter of 'twenty four.
Heath Byrd: Hum, but first quarter second quarter, maybe first half of third quarter, you should see some really nice growth from our fixed operations perspective Rajeev. This is heath I just wanted to add that we do believe we're going to get 100 million in annualized fixed operations gross profit from those technicians, but they're not all going to be up to the level. It is.
Heath Byrd: Gonna take through the year, So you should see that getting better and better helping offset some of the some of the difficulties in the third and fourth quarter from a comp perspective, but that is the $100 million as a number of once they are fully mature.
Heath Byrd: Mature and in place.
Heath Byrd: Got it got it.
Heath Byrd: Thank you and good luck thank.
Heath Byrd: Thank you.
Speaker Change: Thank you. Your next question is coming from Bret Jordan from Jefferies. Your line is now live.
Bret Jordan: Hey, good morning, guys good morning.
Bret Jordan: As you talk about I guess, the power sports segment and sort of what you see is the Tam there I mean, how big could it be and given how tough the cycle is in that space right. Now is now a good time to be buying there like isn't wouldn't you be piling on here because they would be cheaper or is that not really the case.
Bret Jordan: Yeah, you know now that we're kind of dipping our toe in the water people think their deals are all.
Bret Jordan: Our are worth more.
Bret Jordan: So.
Speaker Change: I think that one of the things that's important to us is to get really good at what we're doing.
And our team is maturing around that and I really would like to see another quarter or two a great playbook execution or even this year a great playbook execution.
Speaker Change: We've got a chart of accounts now.
Speaker Change: These are really wild wild west stores that are that are you know doing.
Speaker Change: Doing things a million different ways and to bring them in under the umbrella and get them all operating in the same direction as a as a bit of a lift but.
Speaker Change: But we're learning how to do that and do that better we made a small acquisition in the fourth quarter.
Speaker Change: Probably some opportunities we've got an AD point in Sturgis, we're adding we gotta Harley Davidson add point in service for the show this year, which is going to be great. That's going to add some extra revenue for us.
Speaker Change: Typically we're doing five 600 motorcycles.
During that Sturgis rally and that's going to go up significantly.
Speaker Change: This year well, we'll see.
Speaker Change: We're hopeful that the.
Speaker Change: We think the pans greater we hope we're hopeful that we can we can grow this business, but we're being very cautious and not getting in over our heads and being very prudent with the dollars that we have to spend on acquisitions, yeah and in this day that it's important to keep in mind that you know.
Speaker Change: Our list of priorities right, we've got our core business, our franchise business and in our Echo Park business and the focus and dollars and it takes to grow those.
Speaker Change: Big one where we've gotten in the power sports, which we we think there's a great opportunity there, but we we don't want.
Speaker Change: Anybody to think we're getting distracted with something else.
Speaker Change: Okay, and then a question on Echo Park I mean, the inventory mix as this year is a trough year in lease returns do you need to take the the average age of the vehicle mix up this year just to have available supply and I guess can you talk about sort of how much is being sourced internally you talked about more direct buy versus picking up those $23000 of cars at auction like where do you see.
Speaker Change: Echo parks average vehicle being this year yeah. So we you know we've moved from about 12% of our over mixed the 20 plus percent of our overall mix, which is great and Tim you want to add into the yeah. I mean, I think the average in 25, it's going to continue to get better as the year goes on but I think it's going to fall in that 20.
Speaker Change: 4000 range, we'd like to see it go lower.
Speaker Change: We don't know what the post Covid normal look like we know what it was 21 at our peak.
Speaker Change: So somewhere between 21, and 24 is a sweet spot and that's where we're looking for it to go I don't think we have to change our mix in terms of your age, though we did that in 'twenty three 'twenty four but I don't think we need to do that and twenty-five. We've got we've got enough. There is plenty of inventory out there to support 17 stores that we have.
Speaker Change: It's not an issue as we prove that you know at the end of the third quarter by having too much inventory and being a little bit aggressive there. So we're not really concerned about being able to buy and handle and support.
Speaker Change: In particular in the zero to one to five year old category throughout this year and that's only going to get better as affordability gets better lease returns start to come back next year. All these things.
Speaker Change: Really play into our hand, as we move forward, if we're patient and that's the thing I. Just think if you look at 25 at Echo Park, it's very similar to 'twenty four with operational improvements and stores that werent, making money, we're going to make a little more money I think we got it to 30% to 33 somewhere in that ballpark and EBITDA due a little more volume.
Speaker Change: Continue to execute really well and really prep ourselves for beginning to open stores in 26.
Speaker Change: Okay, great. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you Beth.
Jeff left: Thank you next question is coming from Jeff left from Stephens. Your line is now live.
Jeff: Good morning, Thanks for taking our question.
Jeff Leff: Wanted to ask a question that maybe kind of bridges or brings together your franchise business and Echo Park.
Jeff: First part is I was wondering how much of the.
Jeff: Q4, Q franchise, the new business do you think was due to pent up demand from <unk> and <unk> just curious how much how sustainable do you think that's going through and then as it relates to Echo Parker and I guess I was a little.
Surprised to hear you know you can have too much inventory given affordability wasn't issue.
Jeff: I guess, if I look at <unk> for the new business.
Jeff: The new environment. It seems like this was the first quarter, where availability and affordability might've been a little better. So I'm just wondering as if there's maybe some relationship there where you know there's substitutes. So just if you could comment on how unique do you think <unk> was and what that means for 2025 on the new side than just the relationship as it relates to Echo Park.
Jeff: Probably some pent up demand on B M. W from the stop sales coming out of <unk>.
Jeff: Q3 going into Q4.
Jeff: We always had a big Q4, so I mean, just because of our luxury mix.
Jeff: It all comes down to December and then it all comes down to the last 10 days of December and we just go berserk.
Speaker Change: I don't know if I would draw a correlation between that and what's going on on the on the Echo Park side, it's a different mix a lot of trades and we mostly sell trades on the franchise side, we're buying cars some off the street like 20% of our overall mix.
Speaker Change: Mostly from the auction, 80% of the mix I don't think there is a correlation there the correlation is as new car inventory day supply increases, which it's doing prices come down, which we're seeing on Nissan we're seeing it on still anthos to two brands that have just been unable to manage their inventory.
Speaker Change: And we can buy those vehicles back now pre COVID-19 type pricing.
Speaker Change: But there is still further to go of affordability needs to come back down, but theres plenty of inventory, but like I said.
Speaker Change: We couldn't go out and buy you know enough inventory to supply 50, or 60 stores right now, but we can darn well do it for for 17 to 25 stores.
Speaker Change: That's in our AR and our bailiwick and we want to just watch what happens here you know over the next six to nine to 12 months before we pull the trigger and open our first location.
David Smith: For Echo Park also this is David I also think that you know it.
David Smith: Being an election year I think just adding some definitive answer on that I think.
David Smith: Into people, making decisions about their transportation.
David Smith: Right.
And then maybe just a quick follow up given the whole senior team on.
David Smith: One of the things that's fascinating is when you.
David Smith: If you put a blindfold on people and didn't give everyone. The ticker symbols and just showed the results your results look.
Speaker Change: As good or better than some.
Speaker Change: Some of the other public peers and a lot of times that is the case throughout the years, but you seem to always treated up a little bit of a discounted multiple I'm curious how you guys think about that what do you think maybe you could do to no.
Speaker Change: Close that gap because it seems like it's just maybe it disappointed on the warranty.
Speaker Change: Yeah, well I mean, I think David I was going to say well you know you certainly have it.
David Smith: Written a nice report on us and we appreciate the confidence.
David Smith: I mean are you scratch your head right I mean, if you look at the if you look at the performance numbers and I know echo parking it plays a big waiting everybody's their thought process, but when you look at the the mothership and our new business.
David Smith: I mean, we had a strong fourth quarter and we continue to have strong quarters are the.
David Smith: The new volume increase year over year, our pre owned increase year over year. So it leads the segments in <unk>.
Speaker Change: Fixed operation certainly does.
Speaker Change: It was a great fourth quarter, we scratch our heads all the time.
Speaker Change: I'm, saying you know what the heck are we missing.
But the street sees we just we're just going to keep plugging away keep executing at a really high level. We are we have never been better and our CSI our customer satisfaction scores, we have never been more green. So green you can see it from the Moon I've heard in terms of our Kpis with our manufacturers where green day.
Speaker Change: Go out and buy dealerships, we're going to do that we're in so many good positions for really the first time.
Speaker Change: In this company's history, we're just sitting in AR and a great seat and look our stock prices growth. There's no question, we had a great year of growth in our stock price of one of the best I think out there and we expect it to continue to grow and we expect everybody else to catch on at some point in time.
Speaker Change: To see exactly what you just said because that's what we see too.
Jeff: Jeff I'll just.
Jeff: One more point on it and yet you know this as well as anybody is obviously from a technical standpoint, the flow is going to impact some investors and so I think that plays in a lot to all of our stock trades as well.
Jeff: Oh, great well listen I, just keep chopping wood controlling what you can control best of luck in 2020, that's exactly what we say every day [laughter].
Jeff: Thank you very much thank you.
Speaker Change: Thank you as a reminder, that star one to be placed into question queue.
Speaker Change: Next question is coming from Chris parents from Needham and company. Your line is now live.
Chris Parents: Hey, good morning, everyone.
Chris Parents: Gross on the eighth on the aged inventory site ethical park is it across the board or is that you've kind of been off mall you can see like some of your newer stores and that's kind of where you had to cut bait.
Chris Parents: It's it's a little bit of both but mainly driven.
Chris Parents: From my perspective kind of over forecasting the demand in the third quarter.
Chris Parents: That fell a little short at the end and carrying that into the fourth quarter and that's having to make the adjustment to wake up in the first quarter of the way we wanted.
Speaker Change: Okay. Okay, and then what would you say you know in your oldest markets like Denver or are you seeing anything.
I think it was referred to earlier that the third party data on Carvana and Carmax as they grow units are you seeing anything your older markets that's of concern or it's business as usual like how would you find that you know all the markets.
Speaker Change: I mean, especially Denver, we're still number one.
Speaker Change: You know some other carvana is of the world have made some progress, but theyre taking it from the <unk>.
Speaker Change: People other than us.
Speaker Change: You are our oldest markets are real real stable and that Denver market.
Speaker Change: The largest freedom dealer in the state I think in and.
Wildly profitable and that's the rinse and repeat that we're looking for.
Speaker Change: Yes.
Speaker Change: Okay, and just lastly, how would you frame I just wanted to get a sense of you know if you look at Echo Park SG&A, it's up about 5 million Bucks in the second quarter, but units were the same versus the second quarter like what's kind of going on under the hood as far as staffing that's driving the increased SG&A.
Speaker Change: And how should we think about that in 'twenty five.
Speaker Change: I think we're up about 2 million. This is Danny we're up about $2 million from from the second quarter.
Speaker Change: And and down a little bit versus the third quarter sequentially on an adjusted basis. So there was some noise related to gains on property sales in prior periods to so you got to look at the adjusted numbers when you're looking at that trend and I think that that may be the delta.
Speaker Change: Okay perfect. Thanks, everyone.
Speaker Change: And really maybe just to close out that thought Chris the SG&A to gross ratio that expansion up into the 85, 5% range in the fourth quarter is primarily driven by the 200 dollar headwind on the front end gross less about the expense side more about the lost gross.
Speaker Change: Right.
Speaker Change: Thank you we've reached end of our question and answer session.
Speaker Change: Sir the floor back over for any further or closing comments.
Speaker Change: Great. Thank you very much everyone and we will talk to you next quarter.
Speaker Change: Thank you.
Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day.
Speaker Change: Thank you for your participation today.