Sonic Automotive, one of the largest auto retailing groups in the U.S., announced its quarterly and full-year financial results for 2023, showing record revenue and profit despite facing margin pressure from the changing market conditions. The company also shared its outlook and strategy for 2024, highlighting its growth opportunities and competitive advantages.
Q4 2023: Strong earnings but lower margins
Sonic Automotive reported a net income of $38.7 million, or 76 cents per share, for the fourth quarter of 2023, compared to a net loss of $190.9 million, or $3.72 per share, for the same period in 2022. The company’s revenue was $3.6 billion, almost unchanged from the prior-year quarter.
The company’s earnings were affected by a pre-tax charge of $16.7 million related to non-cash impairment charges and an additional one-time income tax charge of $5.8 million. Excluding these items, the company’s adjusted net income was $56.9 million, or $1.12 per share, beating the analysts’ consensus estimate of 98 cents per share.
The company’s revenue was driven by a 10% increase in new vehicle retail sales on a same-store basis, offset by a 30% decrease in new vehicle gross profit per unit. The company also saw a 6% increase in used vehicle retail sales on a same-store basis, but a 13% decrease in used vehicle gross profit per unit. The company attributed the lower margins to the normalization of the market supply and demand, as well as the higher cost of inventory.
The company’s parts and service revenue increased by 2% on a same-store basis, while the gross profit margin decreased by 50 basis points. The company’s finance and insurance revenue increased by 9% on a same-store basis, while the gross profit per retail unit increased by $39 to $1,839.
Full-year 2023: Record revenue and profit
Sonic Automotive reported a net income of $178.2 million, or $3.50 per share, for the full year of 2023, compared to a net income of $88.2 million, or $1.71 per share, for the full year of 2022. The company’s revenue was $14.4 billion, up 3% from the prior year and the highest on record.
The company’s earnings were affected by $79.3 million in non-cash impairment charges and other one-time expenses. Excluding these items, the company’s adjusted net income was $238.9 million, or $4.69 per share, exceeding the analysts’ consensus estimate of $4.41 per share.
The company’s revenue was driven by a 3% increase in new vehicle retail sales on a same-store basis, offset by a 19% decrease in new vehicle gross profit per unit. The company also saw a 2% increase in used vehicle retail sales on a same-store basis, but a 9% decrease in used vehicle gross profit per unit. The company’s parts and service revenue increased by 4% on a same-store basis, while the gross profit margin decreased by 40 basis points. The company’s finance and insurance revenue increased by 8% on a same-store basis, while the gross profit per retail unit increased by $57 to $1,855.
Outlook and strategy for 2024
Sonic Automotive expressed optimism and confidence for 2024, expecting to achieve revenue growth, margin expansion, and earnings growth. The company also announced its guidance for the first quarter and the full year of 2024, as follows:
- Q1 2024: Adjusted earnings per share of $1.05 to $1.15, compared to 76 cents in Q1 2023.
- Full-year 2024: Adjusted earnings per share of $4.75 to $5.25, compared to $4.69 in 2023.
The company also shared its strategy and initiatives for 2024, which include:
- Expanding its franchised dealership network through acquisitions and greenfield developments, focusing on high-growth and high-margin markets and brands.
- Growing its EchoPark used vehicle business, which offers a digital and physical retail experience, with lower prices, higher quality, and better customer service than traditional dealerships.
- Leveraging its technology and innovation capabilities, such as its e-commerce platform, its Sonic One app, and its data analytics and artificial intelligence tools, to enhance its operational efficiency, customer satisfaction, and competitive edge.
- Investing in its people and culture, by providing training, development, and career opportunities, as well as competitive compensation and benefits, to attract and retain the best talent in the industry.
Sonic Automotive is one of the leading auto retailers in the U.S., with 186 franchised dealerships and 40 collision centers across 15 states. The company offers 35 brands of new and used vehicles, as well as parts and service, finance and insurance, and fleet sales. The company also operates EchoPark, a network of 25 used vehicle stores across 10 states.