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Sonic (SAH) Suspends Operations at Eight EchoPark Locations
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Sonic Automotive Inc. (SAH - Free Report) has decided to indefinitely suspend operations at eight of its EchoPark locations and additional related Delivery/Buy Centers. This move will allow the company to reallocate more vehicles to key markets and increase its capacity to meet demand in these markets.
The company believes that improvements in wholesale pricing will benefit consumer affordability and overall profitability for the EchoPark segment. Additionally, Sonic anticipates an increase in new vehicle production over the next 12 to 18 months, which will improve the availability of pre-owned vehicles and further enhance both consumer affordability and EchoPark's profitability.
The used-car market has been impacted by several factors, including lower production of new vehicles over the past three years, and historically low lease penetration and lease returns, which have resulted in lower availability of used vehicles and higher wholesale prices. Sonic expects the volatility to persist next year as well.
Despite the suspension of operations at certain locations, Sonic Automotive remains committed to its long-term goals for the EchoPark brand. The company aims to achieve EBITDA breakeven for the EchoPark segment by the first quarter of 2024. Furthermore, Sonic has set a goal of reaching 90% of the U.S. population with EchoPark, although it now recognizes that the timeline for achieving this goal may be dependent on how quickly the pre-owned market normalizes in terms of inventory availability and pricing.
Sonic expects the enhancement of the inventory mix at the remaining EchoPark stores, coupled with expense reductions resulting from the closure of certain locations, to have a positive impact on EchoPark's short-term financial performance. Sonic believes that these measures will not only improve financial results but also maintain the foundation for the brand's national expansion and its commitment to providing the best guest experience in automotive retail.
The company has rallied 22.4% in the past year compared with the industry’s 21.5% rise in the same period.
Image Source: Zacks Investment Research
As a result of the abovementioned plans, Sonic Automotive expects to record a one-time charge in the second quarter of 2023, ranging between $60 million and $80 million. Much of this charge is non-cash, with only $3 million to $5 million being cash-related. Further details regarding this one-time charge and the expected impact on EBITDA will be provided on the upcoming quarterly earnings call.
The Zacks Consensus Estimate for Rush Enterprises’ current-year earnings is pegged at $5.61 per share, which has been revised upward by 5% in the past 60 days. The company’s shares have gained around 19.7% over the past year. RUSHA delivered a trailing four-quarter earnings surprise of 8.67%, on average.
The Zacks Consensus Estimate for Volvo’s current-year earnings has been revised 28% upward in the past 60 days. The consensus estimate for current-year earnings for VLVLY is currently pegged at $2.18, implying year-over-year growth of 36.25%. Volvo’sshares have rallied roughly 21.6% in the past year.
The Zacks Consensus Estimate for Honda’s current-year earnings has been revised 19% upward in the past 60 days. The consensus estimate for current year’s earnings has been pegged at $3.96 per share, indicating year-over-year growth of 30.7%. The company’s shares have gained 23.4% in the past year.
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Sonic (SAH) Suspends Operations at Eight EchoPark Locations
Sonic Automotive Inc. (SAH - Free Report) has decided to indefinitely suspend operations at eight of its EchoPark locations and additional related Delivery/Buy Centers. This move will allow the company to reallocate more vehicles to key markets and increase its capacity to meet demand in these markets.
The company believes that improvements in wholesale pricing will benefit consumer affordability and overall profitability for the EchoPark segment. Additionally, Sonic anticipates an increase in new vehicle production over the next 12 to 18 months, which will improve the availability of pre-owned vehicles and further enhance both consumer affordability and EchoPark's profitability.
The used-car market has been impacted by several factors, including lower production of new vehicles over the past three years, and historically low lease penetration and lease returns, which have resulted in lower availability of used vehicles and higher wholesale prices. Sonic expects the volatility to persist next year as well.
Despite the suspension of operations at certain locations, Sonic Automotive remains committed to its long-term goals for the EchoPark brand. The company aims to achieve EBITDA breakeven for the EchoPark segment by the first quarter of 2024. Furthermore, Sonic has set a goal of reaching 90% of the U.S. population with EchoPark, although it now recognizes that the timeline for achieving this goal may be dependent on how quickly the pre-owned market normalizes in terms of inventory availability and pricing.
Sonic expects the enhancement of the inventory mix at the remaining EchoPark stores, coupled with expense reductions resulting from the closure of certain locations, to have a positive impact on EchoPark's short-term financial performance. Sonic believes that these measures will not only improve financial results but also maintain the foundation for the brand's national expansion and its commitment to providing the best guest experience in automotive retail.
The company has rallied 22.4% in the past year compared with the industry’s 21.5% rise in the same period.
Image Source: Zacks Investment Research
As a result of the abovementioned plans, Sonic Automotive expects to record a one-time charge in the second quarter of 2023, ranging between $60 million and $80 million. Much of this charge is non-cash, with only $3 million to $5 million being cash-related. Further details regarding this one-time charge and the expected impact on EBITDA will be provided on the upcoming quarterly earnings call.
Sonic Automotive, Inc. Price and Consensus
Sonic Automotive, Inc. price-consensus-chart | Sonic Automotive, Inc. Quote
Zacks Rank & Key Picks
Sonic currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the auto space include Rush Enterprises (RUSHA - Free Report) , AB Volvo (VLVLY - Free Report) and Honda Motor Co., Ltd. (HMC - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Rush Enterprises’ current-year earnings is pegged at $5.61 per share, which has been revised upward by 5% in the past 60 days. The company’s shares have gained around 19.7% over the past year. RUSHA delivered a trailing four-quarter earnings surprise of 8.67%, on average.
The Zacks Consensus Estimate for Volvo’s current-year earnings has been revised 28% upward in the past 60 days. The consensus estimate for current-year earnings for VLVLY is currently pegged at $2.18, implying year-over-year growth of 36.25%. Volvo’sshares have rallied roughly 21.6% in the past year.
The Zacks Consensus Estimate for Honda’s current-year earnings has been revised 19% upward in the past 60 days. The consensus estimate for current year’s earnings has been pegged at $3.96 per share, indicating year-over-year growth of 30.7%. The company’s shares have gained 23.4% in the past year.