Sonic ‘back to a growth mode'

Sonic Automotive Inc., the nation's fifth-largest new-vehicle retailer, aims to double its annual revenue by the end of the decade.

Sonic collected revenue of $10.45 billion in 2019, a company record and the first time it surpassed $10 billion in annual revenue since its 1997 inception as a public company. And Sonic now is eyeing $20 billion in annual revenue by the end of 2029, company executives said last week as the retailer released higher fourth-quarter earnings.

"We just really wanted to put a stake in the ground and let everybody know that we are back to a growth mode," Sonic CEO David Smith told Automotive News.

After going public in fall 1997 with 20 stores, Sonic quickly grew. Its peak dealership count came in 2004 when it operated 159 stores and posted annual revenue of nearly $7.4 billion. But it shed stores, and acquisitions were largely halted before, during and after the financial crisis.

"Now we're at the point where we paid down a lot of debt, and we're in a position where we can grow," Smith said. "And we're just really excited about that."

Sonic, which trimmed $238 million in debt last year, isn't the only public auto retailer to set a lofty growth goal. Lithia Motors Inc., the nation's third-largest new-vehicle retailer, wants to more than triple its combined U.S. new- and used-vehicle market share as measured by revenue. Such a tripling would make Lithia the No. 1 auto retailer based on today's market-share figures.

Sonic has 86 franchised dealerships and nine standalone used-vehicle EchoPark locations in 12 states.

Last year, Sonic sold 10 franchised stores, including several for which automakers requested large facility upgrades that Sonic passed on.

Sonic President Jeff Dyke said much of the planned revenue gain in the decade ahead will come from EchoPark, but also from improved performance in its franchise business. EchoPark generated $1.2 billion in revenue last year, and the franchise business had an "outstanding" year, Dyke said.

Sonic plans to open three EchoPark locations in 2020, including a store in April in Tampa and one in Atlanta by the end of the year. Another store in an undisclosed location is slated to open midyear, and more EchoPark openings are possible this year should profitability come faster than projected at newly launched stores, Dyke said.

Sonic executives want EchoPark to grow to 25 or more locations in five years. In December, EchoPark opened its first California store — in Signal Hill near Long Beach — and sold more than 450 vehicles in its first 45 days. Its average franchised store sells 100 used vehicles a month.

"For us to open with that kind of pace well ahead of our goals shortens the length that it takes to get these stores up and running and profitable," Dyke told analysts in a call last week.

Rajat Gupta, a J.P. Morgan analyst, said EchoPark growth could provide an additional $6 billion in revenue. That, plus growth on the franchise side, could make $20 billion in revenue achievable by the end of the 2020s, he said.

"Execution is going to be key for continued profitable growth at EchoPark, and management needs to overcome potential constraints around replicating the current success across new stores — particularly with increasing competition and higher price transparency, evolving and dynamic strategies at peers, ability to procure the right mix of inventory and above all, maintaining operating culture at new stores," Gupta wrote in an email to Automotive News.

Dyke said Sonic may even be able to hit its $20 billion revenue target earlier than the end of the decade.

"We thought it was important to give people an idea of, look, here's the potential of this company, but not to put something out there that we couldn't hit," he said.