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Sonic (SAH) Eyes Higher Y/Y EPS in Q3 on EchoPark Strength

Sonic Automotive SAH recently provided an update on business operations and guided third-quarter profits. The auto retailer continues to feel the impact of the coronavirus outbreak, as is evident from new car sales data for July, August and September. New car sales volumes declined 17% and 21% for July and August, respectively. Volumes declined around 9% for the first half of September. Same-store used vehicle volumes at franchised dealerships also declined in July and August but increased in the first 15 days of this month.

Meanwhile, as expected, Sonic’s EchoPark unit emerged as a winner even amid the COVID-19 crisis. Used vehicle unit sales volumes at the EchoPark segment rose 19% and 4% year over year for July and August, respectively. Volumes further surged 36% for the first half of September from the comparable year-ago period. Despite coronavirus woes, the EchoPark segment recorded higher year-over-year sales for the last reported quarter. The trend continued in the third quarter as well. Based on robust growth of the EchoPark segment, Sonic expects third-quarter earnings per share in the band of $1.08-$1.15, suggesting 64-74% increase from the year-ago level.

Strong organic growth fueled by EchoPark expansion is likely to significantly boost Sonic’s growth profile. EchoPark investments are anticipated to drive significant unit share gains, going forward. The company’s focus on expanding the network of stores is set to bolster prospects. Around a week ago, Sonic opened its second EchoPark-branded auto dealership in Houston, in a bid to expand the distribution network. Notably, this was EchoPark’s 11th retail hub location on a nationwide basis.The firm plans to add 25 EchoPark locations per year from 2021 to 2025. Importantly, it remains committed to sell more than half a million vehicles annually by 2025 via a 140-plus point nationwide distribution network. It should be noted that Sonic — whose peers include Lithia Motors LAD, AutoNation AN and Penske Automotive PAG — targets $14 billion in annual EchoPark revenues by 2025.

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