What happened
Shares of Sonic Automotive (NYSE: SAH) were moving backward today after the auto dealership chain missed estimates in its first-quarter earnings report.
As of 2:31 p.m. ET, the stock was down 11.2%.
Image source: Getty Images.
So what
Revenue at Sonic, which is one of the country's largest automotive retailers, rose 1% in the quarter to $3.49 billion, which was short of estimates at $3.56 billion.
Within its franchised dealerships segment, which represents the vast majority of the business, same-store sales fell 1% and same-store gross profit was down 3%.
Revenue at its used car division, EchoPark, was up 5% to $650.5 million, and the company reported record used vehicle sales at 19,980, up 34%, showing used car prices were down substantially, in line with its below-market pricing strategy.
Management also noted challenges from higher interest rates and "vehicle affordability concerns."
Further down the income statement, operating income fell by 31% to $106.4 million due to lower gross profit and higher selling, general, and administrative expenses. As a result of that and higher interest expense, adjusted earnings per share were down 43% to $1.33, below analyst estimates at $1.86.
Sonic President Jeff Dyke said,
Our franchised dealerships team continues to demonstrate the adaptability of our business, achieving all-time record quarterly Fixed Operations gross profit while actively addressing ongoing challenges in the new and used vehicle retail market.
Sonic also raised its quarterly dividend by 3.6% to $0.29 a share.
Now what
The auto retailer didn't give any guidance for the rest of the year, but the auto retail industry has been pressured by rising interest rates, price volatility after the earlier automotive chip shortage, and the threat of a recession as car sales are cyclical.
Given the profit pressures in Q1, investors should expect similar headwinds to persist through the year. However, the stock looks very reasonably priced at a price-to-earnings ratio of less than 7 based on forward-earnings estimates.
The dividend hike should also give investors confidence that the company is confident in its long-term profit-growth potential.
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