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Sonic Sees Recovery in Sales as Lockdown Restrictions Ease

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Sonic Automotive Inc. (SAH - Free Report) recently issued an updated outlook on anticipated vehicle sales volume, and parts and service gross profit for the remainder of 2020. It also updated on the recoveries across all business lines from the declines witnessed in March and April, as states continue to ease the shelter-in-place strategies and begin reopening processes.

Significant progress was witnessed in May, with same-store new vehicle unit sales and same-store used vehicle unit sales declining roughly 20% and 8%, year over year, compared with the fall of 32% and 40%, respectively, registered during April. Sales of the same-store used vehicle unit in the EchoPark segment decreased around 3% year over year in May compared with the 36% drop witnessed in April.

However, sales of all stores used vehicle unit in the EchoPark segment increased 9% year over year in May compared with the 30% plunge witnessed in April.

Sonic continues to see improvements in operating conditions, including a steadily increasing automotive retail consumer demand. The sales volumes of both new and used vehicle units, as well as fixed operating revenues continue to meet or exceed the forecast, with sales of used vehicles at both franchise and EchoPark locations higher than last June. During June month-to-date period, the company registered a rise of 7%, 18% and 34% year over year in its same-store used vehicle unit sales, same-store used vehicle unit sales and all stores used vehicle unit sales in the EchoPark Segment, respectively.

Sonic currently expects to report earnings per diluted share from continuing operations of 23-33 cents for second-quarter 2020. Additionally, the company reaffirmed that it expects to achieve permanent SG&A expense reductions of around $7 million per month compared with the pre-coronavirus levels. Notably, its SG&A expenses rose 23% year over year in May compared with the increase of 32% in April.

Furthermore, Sonic has been trying to control expenses to hoard cash amid the coronavirus crisis, allowing its franchised dealerships and EchoPark stores to achieve better-than-anticipated returns in May and June, driving its updated outlook for second-quarter earnings.

The company also strives to gain better returns on investments through the management of product and vendor support as well as reducing marketing expenses. In California, however, it is seeing a slower recovery, particularly in the fixed operations market.

From an inventory perspective, the company had 57 days' supply of new vehicles at its franchised dealerships at the end of May. Sonic continues to maintain less than 30 days’ supply of used inventory at both its franchised dealerships and EchoPark stores, positioning it to meet rising consumer demand and capitalizing on expected near-term inventory acquisition opportunities.

Zacks Rank & Stocks to Consider

Sonic currently carries a Zacks Rank #3 (Hold). Shares of the company have depreciated 0.4%, year to date, compared with the industry’s decline of 17.1%.

Some better-ranked stocks in the same sector are Tesla, Inc. (TSLA - Free Report) , Halfords Group Plc (HLFDY - Free Report) and Niu Technologies (NIU - Free Report) , each carrying a Zack Rank of 2 (Buy) at present. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Shares of Tesla have appreciated 137.1%, year to date, as against the industry’s rise of 39.1%.

Shares of Halfords have gained 5.8%, year to date, as against its industry’s decline of 12.6%.

Shares of Niu have gained 52.4%, year to date, as against its industry’s decline of 12.6%.

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