Sonic Automotive - Q3 2022

Transcript

Operator (participant)

Good morning, and welcome to the Sonic Automotive third quarter 2022 earnings conference call. This conference call is being recorded today, Thursday, October 27, 2022. Presentation materials which accompany management's discussion on the conference call can be accessed at the company's website at ir.sonicautomotive.com. At this time, I would like to refer to the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information, or expectations about the company's products or market, or otherwise make statements about the future. Such statements are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission.

In addition, management may discuss certain non-GAAP financial measures as defined in the Securities and Exchange Commission. Please refer to the non-GAAP reconciliation tables and the company's current report on Form 8-K filed with the Securities and Exchange Commission earlier today. I would now like to introduce Mr. David Smith, Chairman and Chief Executive Officer of Sonic Automotive. Mr. Smith, you may begin your conference.

David Smith (Chairman and CEO)

Thank you very much, and good morning, everyone. Welcome to Sonic Automotive's third quarter 2022 earnings call. As she said, I'm David Smith, the company's chairman and CEO. Joining me on today's call is our president, Mr. Jeff Dyke, our CFO, Mr. Heath Byrd, our EchoPark Chief Operating Officer, Mr. Tim Keen, our Chief Digital Retail Officer, Mr. Steve Wittman, and our Vice President of Investor Relations, Mr. Danny Wieland. I'd like to begin by sincerely thanking all of our amazing teammates, customers, manufacturer, and vendor partners for helping Sonic Automotive achieve another period of record-breaking financial performance, including record third quarter revenues, gross profit, net income, and earnings per share. Highlights from our quarterly results include record third quarter revenues of $3.4 billion, which is up 12% year-over-year.

Sonic also posted record third quarter gross profit of $581 million, up 23% year-over-year. This drove us to achieve record third quarter net income of $87 million, or $2.23 per diluted share. During the third quarter, we continued to see strong new vehicle pricing, consistent consumer demand for new vehicles, and sustained growth in our parts and service business. While we experienced lower new vehicle sales volume on a year-over-year basis due to ongoing supply chain constraints and limited vehicle inventory, we also continued to see strong new vehicle GPU and a sustained pre-order bank. Our used vehicle volume was consistent with industry trends year-over-year, reflecting ongoing affordability concerns as a result of near record-high used car prices and a rising interest rate environment.

I'm happy to say that since quarter end, though, we have continued to see stability in our overall business despite macroeconomic headwinds and concerns around rising interest rates, heightened inflation, and ongoing global supply chain constraints. Our financial results reported earlier today demonstrate the fundamental strength of our diversified automotive model, as well as our team's unwavering commitment to creating long-term value for our guests, manufacturer partners, and stockholders. While we remain optimistic about our long-term prospects and growth trajectory, we realize that we are not operating in a vacuum. As I mentioned on our last earnings call, this is not the first time Sonic has had to navigate through adverse economic cycles.

Our team is well aware of the current challenges we are all facing and is monitoring our operations daily to adjust for any near-term obstacles related to the overall industry and economic environment while maintaining a long-term strategic view for our business. As such, we remain adamant in maintaining our strong balance sheet position, which we consider to be essential in today's world. Our team remains very focused on maintaining high levels of profitability, generating strong cash flows, and proactively managing our cost structure. To this end, we are continuing to take a strategic, measured approach to our expansion plans, both with our franchise dealerships as well as with EchoPark, as we balance our commitment to long-term growth with our current priority to maintain a strong liquidity position in light of uncertain macroeconomic outlook. Turning now to our franchise dealership segment results.

Third quarter 2022 revenues were $2.8 billion, up 18% from the prior year period. Segment income was $146 million, up 1% year-over-year, and segment adjusted EBITDA was $198 million, up 10% from the prior year. On a same-store basis, franchise dealership revenues were up 3% from the prior year, while gross profit was up 5%. Parts and service gross profit increased by 10% year-over-year, with same-store customer pay gross profit up 12% and same-store warranty gross profit up 7%. Same-store F&I gross profit was down 5% on lower unit sales volume despite an all-time record quarterly franchise dealership segment F&I gross profit per retail unit of $2,473, which was up 7% from prior year.

Despite persistent new vehicle demand, sales volumes during the quarter continued to be impacted by ongoing vehicle production constraints. Same-store retail new vehicle unit sales volume was down 6%, even as same-store retail vehicle gross profit per unit was up 28% year-over-year to $6,571. Same-store retail used vehicle unit sales volume was down 12%, while same-store retail used vehicle gross profit per unit was lower by 9% year-over-year to $1,669. As of September thirtieth, our franchise dealership segment had approximately 18 days supply of new vehicle inventory, unchanged from the second quarter. Production continues to improve slowly while demand for new vehicles remains strong, which continues to drive strong new vehicle GPU. Our franchise dealership segment had approximately 31 days supply of used vehicle inventory, again, unchanged from the second quarter.

Given ongoing new vehicle inventory constraints, recent declines in wholesale market pricing, and our current macroeconomic outlook, we continue to be disciplined in managing our used vehicle inventory, volume and pricing. Now let's turn to EchoPark. For the third quarter of 2022, we reported revenues of $608 million, down 8% from the prior year. Despite this, we reported record third quarter EchoPark gross profit of $49 million, up 88% year-over-year. EchoPark retail sales volume for the quarter was 15,422 units, down 27% from the prior year as we continue to focus on executing our strategic adjustment to include 5+-year-old vehicles in EchoPark inventory.

Digging a little deeper here, 5+-year-old vehicles represented 19% of EchoPark retail used vehicle unit sales volume in the third quarter, which is up from 9% in the second quarter of 2022. Our non-auction sourcing mix grew from 25% in the second quarter to 32% of sales in the third quarter. As we expected from the third quarter, we reported EchoPark segment loss of $29.9 million compared to $34.9 million in the second quarter and $32.9 million in the prior year quarter. EchoPark reported an adjusted EBITDA loss of $21.4 million in the third quarter, an improvement from the loss of $27.9 million in the second quarter and a loss of $28.5 million in the year ago period.

This sequential improvement from the second quarter demonstrates the benefits of strategic shifts in inventory mix and sourcing that I mentioned earlier. At the end of September, our EchoPark segment had approximately 57 days supply of used vehicles. EchoPark branded locations, though, the base supply was just 40 days, excluding new locations opened during the third quarter, positioning us well as we head into the fourth quarter. During the third quarter, we continued to strategically expand EchoPark's distribution network, including a new delivery center opening in Tulsa, Oklahoma, and retail hub opening near Sacramento, California. Including our new location openings during the quarter, the EchoPark brand now reaches over 50% of the U.S. population, on its way to 90% of the U.S. population by 2025.

In addition to growing geographically, we've also continued to expand EchoPark's digital footprint with the continued success of our new e-commerce platform, which was successfully rolled out this past June to 100% of our nationwide traffic at echopark.com. For the third quarter, omnichannel sales through our new e-commerce platform accounted for 31% of EchoPark's retail unit sales volume, compared to 19% in the second quarter. Further, 7% of EchoPark volume during the quarter was sold end to end online as guests continued to utilize our enhanced omnichannel purchase experience, with out-of-market buyers representing 60% of our e-commerce sales. We continue to monitor EchoPark's performance and remain confident in this segment's long-term growth prospects once the used vehicle market returns to normalized conditions in due course.

In the interim, we've continued to take steps to adjust our structure at EchoPark to better align with the current environment and target a return to break-even EBITDA in the second quarter of 2023. We are already seeing the benefits of expanding our inventory offerings to include 5+-year-old vehicles, enabling us to reach additional customer segments, improve consumer affordability, and to source more vehicles from non-auction sources, which will improve profitability. We began to see the benefits of these actions this past quarter and expect to see further improvement in EchoPark losses during the remainder of the year. We are still in the early stages of these initiatives.

Once we have further visibility on future used vehicle market conditions and the effects of the strategic adjustments we have made at EchoPark, we will provide an updated EchoPark model and guidance. As an update on our share repurchase activity, during the third quarter, we bought back approximately 3.1 million shares of the company stock for approximately $151.5 million. Year-to-date, we repurchased 5.2 million shares, representing 13% of shares outstanding as of the end of 2021 for approximately $245 million. As previously reported, in July, Sonic's board of directors increased the company's share repurchase authorization by $500 million.

Taking this into account with our recent repurchase activity, this results in a total of $481 million in remaining share repurchase authorization, representing over 25% of Sonic's current market cap. Now turning to our balance sheet. We ended the second quarter with $488 million in available liquidity, including $171 million in cash and short-term deposits on hand. The decrease in liquidity from the end of 2021 was driven primarily by the share repurchase activity I just mentioned. Additionally, I'm pleased to report today that our board of directors has approved to increase our quarterly cash dividend to $0.28 per share, payable on January 13, 2023, to all stockholders of record on December 15, 2022.

Our strong sales performance, cash flow generation, and balanced capital allocation strategy continues to allow Sonic to return capital to shareholders through its quarterly dividend and share repurchases. In summary, our third quarter results reflect another quarter of record financial performance in spite of growing macroeconomic concerns. Looking forward, we will continue to advance our strategic growth plans for both our Sonic franchise dealerships and our EchoPark business, taking the necessary steps in the short term to maintain our strong balance sheet so we can continue to reach our longer term goals while still benefiting from the strength of our diversified business model. We remain confident in reaching these goals and look forward to delivering further revenue growth, increased profitability, and generating long-term value for our stockholders. This concludes our opening remarks, and we look forward to answering any questions you may have. Thank you very much.

Operator (participant)

Thank you. I will now begin the Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, that's star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question comes from John Murphy with Bank of America Merrill Lynch. John, your line is now open.

John Murphy (Managing Director and Lead US Auto Analyst)

Good morning, guys. I just got a first question on inventory restocking and grosses. You guys have a much heavier luxury import mix than most dealer groups, I'm just curious what you're hearing there. It kind of sounds like domestic might be catching up a little bit faster than luxury import brands, but maybe not. I'm just trying to understand what you think is gonna happen there and when you get back to normal and what that normal means.

Jeff Dyke (President)

Hey, John, it's Jeff Dyke. Yeah, the import brands in particular and Honda in particular, obviously the days supply are really low, 3, 4, 5 days. We expect that to continue for the foreseeable future. The highline brands are getting better. Mercedes, BMW, our days supply in total is growing there, not as quickly as we'd like, but certainly it's growing. I think it's gonna continue to get better, as we move through the first and second quarter. I think the manufacturers are doing a great job of busting their butts, you know, getting inventory to us, but they still have supply chain issues. Chips are still a problem. That's you know gonna weigh on the industry, you know, for the foreseeable future.

Day supply, you know, as we look into next year, if we're sitting at 18 days today, day supply next year, we're hopeful that, you know, 25 days, I don't think it gets to 30 days, but, you know, keep our fingers crossed. Because that's gonna drive and will continue to drive pre-owned pricing down. That's a big piece of the puzzle for us from an EchoPark perspective.

John Murphy (Managing Director and Lead US Auto Analyst)

What do you think that means for grosses? I mean, it's still, I mean, 18-25 days is still pretty damn tight relative to history. Does that mean grosses are still reasonably strong or are they fading just a bit?

David Smith (Chairman and CEO)

We're seeing just a little compression in this quarter, but not a lot. I mean, I think the grosses, you know, certainly from a pre-COVID perspective, are gonna be really high. If we were running $2,200-$2,300 a pop then, we're well north of $6,000 now. Maybe a return to norm is in the $4,500-$5,000 range, but I don't see. That's certainly not gonna happen this quarter. I don't see it happening in the first and second quarter of next year. Grosses are gonna continue to remain high from an F&I perspective.

John Murphy (Managing Director and Lead US Auto Analyst)

You guys made mention of measured approach to growth. Yet when I think you just kind of cited you know the EchoPark you know expansion by 2025, it didn't sound like there was much throttling back at all there. I'm just curious, particularly around EchoPark, you know, how you think about this you know macro backdrop of what's going on in the used car market where it seems like it's gonna be shrinking in supply for a number of years to come because we've just sold so few new vehicles, that it might be challenging to grow in absolute terms, and you're really gonna have to go after market share pretty heavily there.

I'm just curious how you think about maybe tapping the brakes a little bit on EchoPark growth or maybe not, and this might be a great opportunity to go after some competitors that might be flailing and not have the capital resources that you do.

David Smith (Chairman and CEO)

This is David. As it relates to EchoPark and our future expansion, we're gonna. I know some of our teammates here will jump in on this as well, but we're gonna have a very disciplined approach to that. We're gonna get back on track. We're seeing, you know, as we mentioned, some, you know, huge progress on some of our EchoPark stores, that, you know, Tim Keen and the team have been working on and Jeff Dyke. We're gonna see that to fruition and before we start rolling it out a bunch of other additional locations.

Jeff Dyke (President)

We opened Tulsa and Sacramento in the third quarter. Great expansion for us. We're now over 50% of the market. We don't see a problem getting to 90% of the market by the end of 2025. We're not gonna open any stores for the remainder of the fourth quarter, first quarter, second quarter. We're at an average wholesale price right now, down from $31,500 to just below $26,000 that we're buying in the auction lanes. We expect that to continue to drop, John. The rental car companies are out of the auction lanes. Some other competitors are struggling. We have access to inventory.

As prices drop, EchoPark, this is a great time for us because the recession, happens, it doesn't happen, but things are slowing down, and that's when EchoPark really thrives. These prices are gonna drop. I think that by the middle of next year, we'll be buying in the auction lanes, you know, maybe in the $23,000-$24,000 range, and that's where the average monthly payment gets back down to where it was pre-COVID, somewhere in that $450 range. In last quarter, our average customer paid $630 with warranties and everything wrapped in. It's still too close to the new car payment. We'll tap the brakes here for a couple of quarters, get back to really focusing on the EBIT situation at EchoPark.

What's gonna create the positive EBITDA is just that average price and the monthly payment for the consumer to continue to drop. We're really excited. We had an EchoPark senior management team the other day. The team is pumped up. We see the volume coming back. Our big store in Thornton in the month of September made right at $900,000 profit. You know, I don't think there's another single point used car store in the country that was doing that. We sold 700 cars out of that store. We'll do over 800 cars in October. The business for EchoPark is coming back. We always said that it would. We're right on track with where we said we'd be.

We'll see an improvement in EBITDA from the third quarter and the fourth quarter. We're already seeing that in October. We feel like really exciting times as we move forward. We're cautiously optimistic. We're gonna manage our capital properly. We'll tap the brakes here for a couple of quarters, not open any stores, and let's see what happens in the back half of next year, which will also include our thoughts on spending our branding, starting our branding campaign and really driving EchoPark. We really never advertise EchoPark. It's sort of a price-driven company. We've got that on our plate too. We're gonna be smart, wait, and we'll see what happens with the pricing in the wholesale market.

I would expect that the 1-4-year-old category comes back stronger in the next couple of quarters. We probably will sell less +5-year-old cars as a percentage, but it's certainly helping the bottom line.

David Smith (Chairman and CEO)

Thank you, guys. Jeff mentioned. This is David. Something that Jeff mentioned there, our advertising and, you know, our word of mouth advertising really couldn't be better. That's something we're really proud of is that our guest experience is really an industry-leading, you know, five-star guest experience at EchoPark. We don't wanna sacrifice that as we get back to growth. We've got some stores that are, you know, we've got some of our experienced drivers, we call them, some of our salespeople are selling, you know, more than 50 cars and delivering on that guest experience. We wanna make sure that we have the proper training and hiring processes as we continue to roll those stores out.

Jeff Dyke (President)

Yeah, John, another good point is prior to COVID, our average experienced guy sold 25 cars a month. We're now at about 23. Some of our stores are just being overrun with, you know, averaging 30-35 cars a month. We're starting to hire experienced guys again. The business is coming back and it's a lot of fun for us. Obviously been a tough year from an EBIT perspective. We've had measured growth this year. We'll be smart about that over the next couple of quarters, and we're excited about where we stand with EchoPark, especially in comparison to a lot of competitive set that's sitting out there with really heavy day supply, and struggling in an environment like this.

It's tough when you have 99, you know, physical, you know, lots that you can't use. Anyway. Okay. Thank you so much, guys. I appreciate it. Not for you guys, your competitors. Thank you.

John Murphy (Managing Director and Lead US Auto Analyst)

Yeah. No. Hey, we get it. We're watching them real close.

David Smith (Chairman and CEO)

Thank you for clarifying that. Yeah, yeah. Definitely not you. I mean, somebody else there. I'll leave it there. Thanks, guys.

Jeff Dyke (President)

Thanks, John.

Operator (participant)

Thank you, John. Our next question comes from Joe Enders with Stephens. Joe, your line is now open.

Joe Enderin (Senior Research Associate)

Hey, guys. Thanks for taking our questions.

Jeff Dyke (President)

Hey, Joe. Good morning.

Daniel Joseph Enderlin (Senior Research Associate)

On capital allocation. Hey, on capital allocation, share repurchase came in ahead of our expectations. Just wondering if you think we can expect some continued elevated buyback or how are you thinking about priority here versus the M&A environment given your tapping the brakes on EchoPark growth?

David Smith (Chairman and CEO)

Is this Hearth?

Heath Byrd (CFO)

Yeah. This is Heath Byrd. As David Smith mentioned in his opening comments, we always look at capital allocation as a balanced approach. You know, I think we did show that, you know, one of the big buckets is returning capital to shareholders, increased the dividend by 12%. Of course, as you mentioned, the share repurchases over 5 million for the year.

As we look at share repurchase, you know, we always look at when it's undervalued, and when we feel it's undervaluing. We look at it from an opportunistic standpoint, balanced with the other priorities. There's not a regular scheduled cadence that'll come from us on the share repurchase. It's more opportunistically as we compare to the other opportunities. EchoPark expansion, as Jeff and David mentioned, you know, it is slowing a little bit and it'll be correlated with the market. You won't have as much capital spend in the next quarter and the first two quarters of next year. That's gonna free up opportunities for other buckets. Lastly, M&A is one of those things that's so hard to predict because the opportunities come along sporadically.

We're in a great position to take advantage of those when they do come up. It's really like the share repurchase. There's no cadence that we could actually predict on that as well. It's just when they come up, we'll do it. Those are the big buckets and priorities, and of course, all of that we weigh against our liquidity and leverage. We are very comfortable where we are in both those categories, and we hope to stay and plan to stay in those same levels. That's really our balanced approach.

David Smith (Chairman and CEO)

Yeah, this is David Smith. It's interesting.

Some of our peers have been saying this as well, that the prices of, you know, franchise dealerships, while still high historically, we have seen some signs that those prices are coming down. It'll be interesting to see, and especially going forward into 2023, what prices we're gonna see and what opportunities that could come across our desk. They've gotta be, you know, extremely attractive in order to allocate capital towards acquisitions.

Joe Enderin (Senior Research Associate)

Got it. That's all for me. Thank you, guys.

Jeff Dyke (President)

Thank you.

Operator (participant)

Thank you, Joe. Again, as a reminder, to submit for a question, that's star one on your telephone keypad. Our next question comes from Rajat Gupta with J.P. Morgan. Rajat, your line is now open.

Rajat Gupta (Automotive Equity Research)

Great. Thanks for taking the question. You know, just wanted to follow up on the EchoPark comments, you know, from the $21 million EBITDA loss to the breakeven by the second quarter. You know, I think Jeff, you mentioned like volumes was a big driver, like, but can you help us bridge that gap in a bit more detail as to how we get from 21 to flattish? You know, is it just primarily volumes and leverage on that? You know, or do you expect GPUs continuing to move higher? You know, any further SG&A actions for driving that? You know, maybe if you could help bridge that in more detail would be helpful.

Jeff Dyke (President)

Yes. Thanks for the question. The fixed expenses from an SG&A perspective are pretty fixed at EchoPark. That's when you hit big volumes, you see the kind of profit we got out of Thornton. You know, if you look back, you look at August, we're a little below 4,000 cars. You look at September, a little above 4,000 cars. You look at October, it'd be a little above 5,000 cars. We expect that to continue to grow. We're gonna do better in November, better in December. It is a volume piece. Our big stores need to be at that 400 level in order to break even. Then once they plow past that, the dollars fall to the bottom line quickly. Again, that's what you see happening at Thornton.

We believe that the prices from the wholesale market for a 1- to 4-year-old car are gonna continue to drop. Like I said earlier, the rental car companies are coming out of the lanes. Some of our competitors are having a lot of problems. The inventory is there for us. If for some reason the wholesale prices stop dropping, we would have to take some different strategic moves in order to get to positive EBITDA, but we just don't foresee that. We've been saying this all year. We've been predicting this is what's gonna happen, and it's happening just exactly as we've laid out. We think as we move into the first quarter, we'll see continued drop.

I think by the end of this year, Rajat, we're gonna see $24,000 price point at the wholesale line, which is great for us. That gets us below that $500 monthly payment. We think that'll, you know, maybe flatten out a little bit and then continue to drop a little more as we move to the latter half of last year. We get to the 7,000-8,000 car mark, we're breaking even at EchoPark based on our expenses today. But pre-COVID, our store set today would be in the 12,000-15,000 car a month range, right now based on the volumes that we had. We expect to go back there. As those prices keep dropping, that's what's gonna happen. That's the bridge.

That's how we walk to the positive EBIT. We think right now, you know, whether it's in the first part of the second quarter, the latter half of the second quarter, or even the first part of the third, based on how we see things moving right now in the auction lanes, that's when we'll return to positive EBIT. We're really excited about it. It's a great opportunity. We've worked very hard on this model, so very confident in the model. You see a lot of other models flailing around, and it's just the strict inventory management guidelines. Sometimes you might miss out on a little volume, but at the end of the day, our gross is there. We're gonna get back to positive EBIT.

That's gonna happen in the calendar year of 2023, and we think, you know, latter half of the second quarter, first part of the third quarter is when that's gonna happen.

David Smith (Chairman and CEO)

This is David. Something just to remind investors is that, prior to COVID, some of our EchoPark stores were some of our most profitable dealerships across the board, including all of our franchise stores. It's something to remember that. We, you know, Jeff knows what he's talking about there when he says a return to profitability.

Jeff Dyke (President)

It's coming.

Rajat Gupta (Automotive Equity Research)

Got it. That's helpful, color. Maybe, you know, going back to the franchise business and, you're taking a lot of, like, productivity action over the last couple years. What kind of scenario are you planning for into next year in terms of, you know, growing the franchise business? You know, maybe the car environment, the used car backdrop. In that context, you know, if there is a recession in the U.S., and if GPUs denormalize sooner than expected, and then building in new cars, where do you see SG&A growth stepping down for the franchise business for the company? Especially, like, do you see that macro backdrop playing out?

If not, like, how should we think about you guys post around SG&A growth next year? Thanks.

Jeff Dyke (President)

Yeah. We're building our 2023 budgets now. We're in the budget season. From a front-end perspective on new car, I think margins, maybe the back half of next year we get to $4,500, somewhere in that ballpark. Certainly not in the first half. I mean, it's gonna be, you know, $6,000, $5,500, $5,300, somewhere in there. We're gonna have more new car volume next year, just because the supply is gonna be bigger. I think our used car business will be real solid, just real strict inventory management. Our gross will be there. It'll be solid. Maybe on a PUR basis, we step back a little bit in F&I, but not a lot. I mean, if it's $25 a car or something of that nature.

The overall gross for F&I is gonna grow just because the volume will grow. Our fixed operations business is on fire. We're growing that each quarter. We had a record quarter, all-time quarter last quarter. That's gonna continue to be good. As I'm looking at next year, from a gross perspective, it looks a lot like this year to us, in total gross dollars. I think that maybe we're up a little bit. I think in our latest budget, we had maybe $12 million more in gross, in our budget than we did this year, based on how we think this year will end. It's gonna look a lot like this year from a gross perspective. He's got some comments on SG&A.

Heath Byrd (CFO)

Yeah. I mean, I agree with Jeff that the total gross dollars are gonna look very similar. Nothing materially that we can see with the changes, especially down to the downside. It's just gonna come from different areas. Different benefits. We're seeing warranty for the first time in years, picking up as well. I agree with him on the gross side. On the SG&A, you know, we'll be maintaining the same kind of expense reductions that we achieved from the pandemic. We also have automations and online activity that'll help an overall expense spend and improve efficiencies. We are gonna have some investments in technology and other areas for the future that is gonna add to that spend.

You could probably see a slight uptick in our percent of gross in SG&A. Nothing that significant, but I do believe we're gonna have some things we're doing for the future that could impact that and make it grow up just a little bit.

Rajat Gupta (Automotive Equity Research)

But, and the gross-

David Smith (Chairman and CEO)

The good news is that the

Rajat Gupta (Automotive Equity Research)

Yeah. The kind of gross dollar comments, or us next year, you know, the gross profit dollars just for the franchise business is what you're referring to or, an overall company?

Jeff Dyke (President)

Yeah. Just the franchise business.

David Smith (Chairman and CEO)

Yes.

Jeff Dyke (President)

I'm sorry. I thought that's where your question was going. EchoPark's gross will be.

Rajat Gupta (Automotive Equity Research)

Yeah.

Jeff Dyke (President)

A little better.

Rajat Gupta (Automotive Equity Research)

No, the reason I ask that is because if you take that into account, you know, maybe, you know, and the comments on SG&A and if EchoPark does do better than gross margin better than per unit for the full year, that should mean you should comfortably grow.

Jeff Dyke (President)

You're on it.

Rajat Gupta (Automotive Equity Research)

EPS next year with the buybacks, right? Is that, is that what you're suggesting?

David Smith (Chairman and CEO)

Yeah.

Jeff Dyke (President)

You're on it. That's how we see it.

Rajat Gupta (Automotive Equity Research)

Okay, great. Thanks for the color.

David Smith (Chairman and CEO)

Thank you.

Jeff Dyke (President)

Thank you.

Operator (participant)

Thank you. As there are no more questions in queue, I will pass the conference back over to CEO David Smith for any additional or closing remarks.

David Smith (Chairman and CEO)

Great. Thank you very much, and thank you everyone for joining us on the call today, and have a great day. Thank you.

Jeff Dyke (President)

Thank you.

Operator (participant)

This concludes today's Sonic Automotive third quarter 2022 earnings conference call. Thank you for your participation. You may now disconnect your line.