Sonic Has Solid Second Quarter but Withdraws EchoPark's 2025 Sales Target

Sonic’s second quarter saw all-time record revenue and gross profit, but adjusted diluted EPS from continuing operations of $2.45 still fell short of the $2.55 Refinitiv consensus as did revenue. Management also announced that the strategic review for the EchoPark standalone used vehicle store business, that started a year ago, is over because the board does not find current market conditions favorable for “the value creation objectives for the business.” Management to us sounds open to a future transaction, but we feel the stock market currently treating dealer stocks as if a recession is about to hit is not favorable to a sale or spinoff, so we think stopping the review makes sense. The chip shortage also means very high used vehicle procurement costs, which makes used vehicle profitability much harder than in recent years and also restricts the supply of 1-4-year-old vehicles.