Good morning and welcome to the Sonic Automotive Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder ladies and gentlemen, this call is being recorded today, Monday, July 20, 2015. Presentation materials, which management will be reviewing on this conference call, can be accessed on the company’s website at www.sonicautomotive.com by selecting Investor Relations under our company dropdown box, and then choosing Webcasts & Presentations on the right side of the page. At this time, I would like to refer to the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. During the conference call, management may discuss financial projections, information or expectations about the company’s products or markets or otherwise make statements about the future. Such statements are forward-looking statements 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. Thank you. I would now like to introduce Mr. Scott Smith, President and Chief Strategic Officer, Sonic Automotive. Mr. Smith, you may begin the conference.

Thank you. Good morning ladies and gentlemen. I am Scott Smith, company’s President and Chief Strategic Officer. Joining me on the call today are David Smith, our Vice Chairman; Heath Byrd, our CFO; Jeff Dyke, our Executive Vice President of Operations; and C.G. Saffer, our Chief Accounting Officer. I’ll start today’s call with an overview of the strategic initiatives, then turn the call over to Heath for a review of our Q2 financials, followed by Jeff with a look at our operating performance. We’ll then open the call for your questions. If you’ll turn to next slide please. Our strategic focus has been consistent the last several years, growing our own base business; owning our real estate; returning capital to shareholders. This strategic focus will continue for the foreseeable future. As most people who follow the company are aware, Sonic Automotive is growing its base business through very unique, bold avenues that I believe will give us a competitive advantage and differentiate Sonic from others in the retail automotive space to a customer centric, One Sonic-One Experience and through our pre-owned specialty stores called EchoPark. Next slide please. One Sonic-One Experience, for those that have been following us, it is doing very well. It’s essentially an exercise in brand building. The building of brand is centered around the customer. The objective is to put the power in the customers’ hands where they can enjoy the automotive purchasing experience with one associate, at one price, in one hour. We believe that our experience will be unique in the industry and it will improve transparency and increase trust and ultimately profitability. One Sonic-One Experience has been fully implemented in Charlotte since Q4 of ‘14. JD is going to talk about it a little bit later. That is going very well, and we…

Thanks Scott. Good morning everyone. I’ll be providing the second quarter financial results from our franchise business and EchoPark separately as well as consolidated. So, let’s start on slide 12 for the franchise operations. For the quarter, revenue was up 2.1%; gross profit was up 1.7%. This growth was achieved with five less stores compared to last year. If you look on a same store basis, revenue was up 4.7%; gross is up 4.1%. SG&A as a percent of gross was improved by 10 basis points in total, 60 basis points improvement on a same store level. Adjusted diluted EPS was $0.51, an increase of 6.3%. If you move to slide 14, EchoPark results, revenue was $21 million; gross profit was $2.6 million. This resulted in a pretax loss of $4.1 million. This compares to an adjusted pretax loss of $4.9 million in Q1 2015, that’s a 16.6% improvement. Total units sold was 881 compared to 660 in Q1 2015; that’s an improvement of 33%. Impact on diluted EPS is negative 5 pennies from EchoPark. If you move to slide 16, this is our consolidated results. Revenue was $2.4 billion, an increase of 3%. Gross profit of $356 million, an increase of 2.5%. With the inclusion of EchoPark, SG&A as a percent of gross was flat at 79.2%. This resulted in adjusted diluted EPS of $0.46, an increase of 4.5%. Next slide, breaking down revenue and gross, all the revenue lines were up, led primarily by used, fixed, and F&I. New retail gross was down; this is driven by rate per unit. Used gross up 8.6%, fixed up 6.5%, and F&I up 7.3%. Next slide please. SG&A, adjusted SG&A to gross was flat. Improvements in variable comp, other variable, and rent were offset by increases in advertising, fixed comp, and…

Thanks, Heath. Good morning everyone. My pleasure to update you on the second quarter 2015 operational performance for Sonic Automotive. As you can see on the new vehicle slide on a same-store basis, we had a year-over-year increase of 2.1%; our total store increase was 3.1%. We continue to truck and GPU pressure in particular in our Toyota and Honda import brands, which are driving a high percentage of the GPU decrease. As we stated last quarter, we’ll continue to be aggressive in our pricing, which is driving higher volumes, share and ancillary growth through F&I. The strategy while lowering our front-end GPU contributed to our highest gross quarter in company history regardless of store count. Our new car day supply was 55 days, in line with our expectations. Next slide please. We had another record breaking pre-owned quarter as our pre-owned business continues to perform well. I’m proud to announce that we achieved 100 units per store for the quarter, a goal that we’ve been working on for a while now. This is the largest pre-owned volume quarter in company history with store count. And I want to congratulate our team on a job well done. In last quarter’s call, I mentioned that we were increasing pre-owned inventory levels in our stores and the team has done a great job adjusting to the increased inventory and volume levels. Margins were flat year-over-year and in line with our expectations for Q2. Pre-owned day supply was 34 days in the quarter and in line with our expectations. Next slide please. We had another record breaking fixed gross quarter of 8.5% in total gross. This is the largest gross quarter in fixed in company history or any store count. As you can see from the slide, warranty continues to grow and our…

Thank you JD. To summarize the quarter, I would say that it is very sound for the Sonic Automotive team. And I’m very proud of our team for our accomplishments here. We experienced growth within each revenue category. For the first time in company’s history, we achieved an average of 100 pre-owned units for dealership from actually a quarter which was fantastic. Fixed ops growth showed strength in customer pay and warranty. And we’re rolling out a One Sonic-One Experience technology to other markets that as Jeff begin later in Q3. And our growth plans with EchoPark will accelerate in the second half of the year which I’m very excited about. We will continue to repurchase shares as we’ll be monitoring our capital requirements for 2017, lease maturities approach but I would expect us to continue to acquire stock opportunistically. It’s an honor and privilege to lead a great company. And I would like to thank all of our associates and parterres for making us one of America’s greatest companies to work and shop. With that we will now open the call for your questions.

[Operator Instructions] Our first question comes from Rick Nelson with Stephens.

I’d like to ask you how about the guidance, $1.85 to $1.95. You talked about last quarter; is there any change to that guidance?

Rick, this is Heath. At this time, we’re not ready to narrow that down; we’re sticking with the $1.85 to $1.95 for our guidance for the year.

And expectation from EchoPark would weigh $0.16; is that still a working number?

That is still the same number, that’s correct. And we’re tracking to be right at that.

Impairments and the storm damage, if you could provide some color on each of those?

This is Heath. The impairment was a Chevy store in Denver. We purchased the store right beside our BMW and Mercedes acquisitions, the Murray acquisitions. There was a Chevy store adjacent to that property. We purchased it in December. We started running the business, we had some struggles with the operations, we also started evaluating some of the obligations that we had with Mercedes Benz on the facility, for the Murray facility, and it actually ended being more advantageous economically to dispose of that franchise and use the property to expand and make a larger Mercedes Benz store -- excuse me BMW store. So, in the end, we’re actually going to be utilizing that real estate to have a larger BMW store, and again we think that’s more advantageous economically.

And Rick, this is Jeff Dyke. And in the same Denver market, we got nailed by hail. We had a hailstorm blow through, hit our Toyota store and damaged 700-800 vehicles, cut through the center of the city, skipped all the EchoPark stores, thank God and then hit the BMW and Mercedes store and the Chevrolet store that we’re closing and wiped out a bunch of their vehicles. We got them all fixed and about 10 days later got another hailstorm and damaged the cars all over again. So, it was just, just the comedy of weather errors there. So, hopefully that’s behind us and we don’t have to deal that anymore.

Also I’ve got one to ask about growth in warranty that was quite significant. If you could provide some numbers, maybe around what recalls contributed to that?

Sure. It’s primarily being driven by BMW and Honda; I think of the $7 million increase, they make up about $4 million to $4.5 million of that. And in particular, the Honda store with the airbag recalls, we just finally developed warranty team. So, I’ve got a warranty writer and technicians that are just basically handling all of that. The amount of dollars that we’re getting back for the recall is really low from my perspective and eating up a lot of our shop hours. So, we’ve created a different way and a different flow through for that warranty business, and we’re doing a much better job with that as you can see this quarter than we had in the past. And then BMW got a lot of really big, big warranty job, in particular we’ve got some of the five and seven series; we’re pulling engines and doing a bunch of stuff that is eating up a lot of shop hours as well. So, they make up the majority of it, and we’ve got our handful. We’ve added 206 technicians; that’s net of technicians that have left us this year for one reason or another from January. So, those 206 technicians are really making a big difference in our push here.

Finally, if I could ask you, same-store growth in cars, 1.3%; how you think that compares to the industry and maybe some commentary on market-share?

Yes, I can comment on that. A chunk of that is coming from our Cadillac stores. And to be quite honest with you, we played with our pricing the last few quarters with Cadillac and our business, while we sold a couple of more cars, not that many but we gave up a hell a lot of gross to reverse that trend, made a hell of lot of more money out of our Cadillac stores, but gave up some volume on a year-over-year basis. And it’s a big -- we’ve got a lot of Cadillac stores even though they are not doing a lot of volume; we’ve got a bunch of stores. So that certainly played a low in our decrease year-over-year from a Cadillac perspective. And then with Toyota, I think we had 10% increase in share versus maybe Toyota being up across the country 1%. We outperformed Honda by double. BMW, we were backwards a little bit. That primarily came from our West Coast stores, in particular Beverly Hills BMW where we were just not as aggressive in pricing, although were up nicely in profitability. And so that’s what’s driving that; it’s a handful of stores and really us making some conscious decisions on some brands that we need to -- we felt like if we raise margins and gave up a little bit of volume, we will bolstered our bottom-line and it really didn’t affect us overall.

This is Heath. We’re actually up 2.1 on the retail side on the new units. We certainly have just a small fleet business, and it takes it down to 1.3.

We’ve got one store; we’ve got a bunch of fleets that we’re backing out of slowly, but surely because this is just not that profitable for us. And so we were up 2.1 as I said in my comments from my slide that I reviewed.

And our next question comes from Bill Armstrong with CL King & Associates.

Just on gross profit per unit. So, you indicated that Toyota and Honda once again were the main drivers of the lower GPU. If we strip out Toyota and Honda, how would you say; how would you think the GPU trended versus a year ago?

Down about $140 or $150 a car. The rest of it -- BMW was a little bit of it as well. But those are the three brands that drove the majority of it.

And is there any indication that that maybe stabilizing any time soon?

I don’t know. We’re going to continue to be really aggressive with Honda and Toyota because we’re gaining share and our profitability is growing. So, I don’t know that we’ll back-off too much right now. One Sonic-One Experience is a part of that and the big growth that we’re getting out of the Toyota store here in Charlotte. And BMW is a little bit all over the board. It just depends on the mix of cars that you have and who is punching what and there is a lot of punch games going on with them. So, we’ll see sort of how it works out. I don’t expect it to be any greater than it was last quarter; I think the quarter before maybe were $50 or something but it’s going to be in or around where we’ve been trending sort of the $1,900ish to $2,000 a car level until we get to the fourth quarter and then you’ll see it go up around couple of hundred dollars a car just because it’s that time of the year.

And then just shifting gears to the One Sonic-One Experience roll out. So, you indicated kind of three waives and the first waive I guess you’re just beginning now. Is that a change in approach from what you were looking to do before or is this kind of sort of the game plan you were originally anticipating?

When we first rolled out in Charlotte, we rolled everything out at one-time and we learned that you don’t want to roll everything out at one-time, it’s like drinking from the fire hydrant. So, we’re now just doing the same thing, but just doing it in pieces and giving our stores the opportunity to use the technology we’ve developed. The technology is just fantastic. And so we’ve got a lot of request for it. Actually we’ve even got request outside of our company for it. We’re going to slowly over the next -- between now and the end of next year, roll that -- roll those three pieces out, our CRM; our desking; and our appraisal tool and then let the Charlotte market sort of catch up and see how it’s doing. I think we’re going to be in pretty good shape here by the end of the year. Our market-share is really starting to grow and so is profitability. So, we’ll see how those things work. And as we get better and better at executing in Charlotte, then we’ll pick some markets to roll the balance of the One Sonic-One Experience process out.

And could you just remind us what is the desking tool; what does that do?

Yes. So, up either on the iPad or from your desk, it allows the manager and in the Charlotte market the sales associate or what we call an experience guy to do the entire transaction, sign, paper work on the iPad, significantly reduce the amount of time it takes to do a deal.

Got it, okay. Thank you very much.

And that same tool by the way is used at EchoPark as well. So it’s in both sides of the business.

Our next question comes from Paresh Jain with Morgan Stanley.

The pre-owned performance in the Charlotte market improved through the months. How much of that would you say was driven by OSOE versus just your overall pre-owned performance improving this quarter?

Yes. The Charlotte market is outperforming the rest of the company; a lot of that is just because the new car volumes increasing, we’re taking more trades. And when you take more trades, you sell more cars. And so that’s part of it. And the other part is we’re executing our play books and doing the things that we need to do in those stores; as you can imagine, a lot of training and a lot of attention going on. So, we expect same kind of lift as we roll out One Sonic-One Experience to the rest of the company.

Got it. And on EchoPark, you’re obviously now ramping up on EchoPark expansion. Are the initial stores pretty much on autopilot in terms of strategy execution and not needing much of management bandwidth going forward? Just trying to understand what gives you more confidence in scaling EchoPark right now.

Yes, they’re doing great. They’ve done a really good job. We’ve got very little turnover. We’re executing; the feedback that we’re getting from our guests is fantastic. We had no intention of -- intended to be profitable as quickly as possible but we certainly didn’t have that in our plans for this year. And it looks like we’ll be cash flow positive in our neighborhood stores anyway, hopefully this year. And so, it just gave us a lot of confidence. We’ve also already developed a next-gen facility which keeps costs even lower, makes us much more efficient. We learned a lot in building the first two neighborhood stores. And so, that’s going to help with profitability. So, we’re really-really confident. It’s just been a big-big success for us so far and hopefully we’ll continue to see that happen.

And just a follow up on EchoPark again; you’re adding a few more stores in Denver in the next 12 months. What has been the competitive response so far within the existing markets?

You’re talking about Denver market?

Yes, with the existing stores?

Yes. It’s competitive, right? We’ve watched our competition; we’re pricing all over. We track everybody’s pricing on a daily basis. So, we’re watching what everybody is doing. But we’re still able to hold. We’re running about 105%, 106% of the market in our pricing; we’re able to hold a little higher growth because of the experience that we provide and uniqueness of the brand. And we’d projected to be able to do that when we started EchoPark. So there is not a lot the competition can do. It’s such a different experience; it’s so different than what’s being offered in the market. And from the reconditioning levels that we have to the speed that we can get a deal out, there is no pressure to the salaried management team and experienced guys; there is such a different level of execution and level of experience. And that’s what the consumer is telling and that’s probably overall driving factor right there is the consumers. It’s fantastic. If you go out on Google or Twitter or the Elephant, just read the verbatims. They are just over the top good.

Our next question comes from John Murphy with Bank of America Merrill Lynch.

Just want to follow up on slide 23. I know there have been some questions and some explanations here. But when we look at gross profit in total on a same-store for new vehicle down 9.3%, yet volume is up 2.1%. I was trying to sort of understand what you guys are doing here, because in some cases you’re saying the gross profit is going up in certain places of business certain activities. But I mean the total is pretty tough to sound like I mean down 9.3% if you’re doing up 2.1% on volume. Just trying to understand in general how you’re thinking about this and what efforts you can take to potentially maybe mitigate some of those losses?

I mean you call a loss, so we’re driving more total company gross and it’s really been driven by the import stores, if you look at it. I mean we are selling hell of a lot more Toyotas and hell of a lot more Hondas and the brand Toyota, or the brand Honda are selling and it’s driving a lot of that reduction, adding a lot to our F&I total gross dollars, adding a lot to our fixed business and so we’ve got more throughput coming. We could get much aggressive there but I just -- we don’t think that’s the right move. And obviously we wouldn’t be doing it if we won’t drive in more profitability. So, BMW did come down in gross for the quarter and a lot of that has to do John with the mix of cars that we have and all the punches that are going on. We’ve got in one day on a side call we can talk about how all that works. But that certainly played a part of it. Those three brands are driving 90% of the gross reduction for us. And our BMW business I would tell you from a volume perspective was really good across the country with the exception of California in the quarter. California, the volume was back but our profitability was up nicely and so a little bit of a trade off there. But you might say that -- if you look at our business Toyota and Honda out of the 100 stores that we have, Toyota and Honda they represent a large chunk of the volume that we do. And so any time you increase the volume, there you have a shift in your margin mix and we’ve done that. We’ve increased our volume in those two brands and we shifted our margin and it’s causing -- affected on the PUR.

But you’re comfortable you’re picking up F&I PVR on the backend on those vehicles and parts and serve ultimately that’s a good trade off; I mean that’s the way you’re thinking about it?

It is, I mean you just look at it, you think about this, it was 2007 this company had 157 stores and we have 100. We just have the largest gross quarter in our company’s history in count of stores. And we’re getting good throughput. Our fixed operations business was rebounding nicely from the moves that we’ve made and we’ve been talking about for last couple of quarters. And so yes, we’re picking it up and if we weren’t, we wouldn’t be doing it.

And then a second question to follow up on slide 28 on the One Sonic-One Experience. Obviously you’re getting some really good volume growth here in the Toyota stores, but I’m just curious is there any profit metrics that you’re looking at there in addition to just volume? And if you sort of held all else equal, which I know is tough to do, do you think that your volume increases there are not impacting profitability at all?

I think that it’s tale of two stories here because it’s in the beginning certainly going one price and being as aggressive as we have been is putting pressure on profitability but that’s turning now as the market begins to follow us in pricing versus us following the market. So as we sort of inch our prices up, our margin is improving in the stores and our profitability is coming back to levels that are acceptable. And that’s why I’m cautiously optimistic, I think by the end of the year we’ll be able to sit down and give you a really good picture on profitability and show you okay, here is what One Sonic-One Experience; here’s what we learned; here are the moves that we made and here’s what profitability looks like now. And we’re not quite ready to do that. Some of the numbers are really nice and good and some of them aren’t. But I think what we look at is the trend that we see is good. And it’s also a big adjustment John. We’ve made huge, huge changes in the environment of these stores and so it’s taking some time. I mean just look how long it took Toyota to begin to ramp up in volume. And in May, we led the market here, that’s never been done since I’ve been around at Sonic and I don’t think it’s ever been done. I think the Scott Clark store always had the number one volume store here. And we were able to push our volume up finer and our profitability is coming along with it, plus the one other thing is that our fixed team was not ready for the amount of service that came into our service department, nor did we have an FX [ph] on the hand. So, we basically doubled the number of riders; we’ve added 10 technicians and now our profitability in service is really starting to grow. That was kind of maybe the big positive surprise that obviously is the amount of fixed that’s been driven into the stores of the increased volume. It’s a lot heavier than we anticipated. And so we’re rapidly trying to catch-up with that. In some cases like Toyota, we actually backwards before we started going forwards because CSI’s got hurt just because of the so much traffic coming into the store. We’ve resolved those issues and now we will see how that plays out here over the next few months.

That’s very helpful. And then just a last question, if we think about the second market for EchoPark, do you think that’s going to be a lot less disruptive? And I think you alluded to the first tranche of EchoPark in Denver being cash flow neutral to slightly positive towards the end of this year. Do you think this is an effort that’s going to start carrying itself or is the second market going to still be a little bit disruptive to cash flow and earnings as we go through next year?

No. I’ll tell you, first of all, we said that the neighborhood stores that the hub won’t be cash flow positive this year in Denver. And I don’t think it’s going to be any more disruptive. We’ve really figured out the formula there. We know what we can spend on a future property. We know how much exactly we can spend on a building. We are not crossing those thresholds. We’re being very, very patient about the properties that we’re buying and how we’re executing that. And it’s nothing outside of the financial plan that we’ve put together for the next five years. EchoPark is either going to outperform that or equal to it as we move forward.

Our next question comes from Brett Hoselton with KeyBanc.

I wanted to follow-on on John’s question about the new gross profit per unit. and just it sounds like -- based on the discussion thus far, it sounds like you’re intentionally choosing to be more price competitive, taking a lower gross profit per unit on the new car side, no front end in order to gain some market share and get some more throughput and you think that you might also be making it up in F&I and service. Is that the overall thought process here?

Yes, but it’s also -- it’s not a 100% of the reduction, just margin mix is contributing to that. And you understand it yourself. 500 more Honda’s versus 500 more than you were selling previously because you’ve lowered your price and your mix changes overall and it drops your mix of PUR. Overall, our total gross dollars are growing.

Now, if I look at slide 28 where you’ve got retail, new retail units for example. Is there any way that you can give us some sense of how these different stores are performing as far as overall store profitability is concerned because obviously this chart here talks about new and the next chart talks about used, retail units, but you’re obviously suggesting that there’s an overall profitability of each of these stores. It’s also seeing some overall improvement. Is there any way that you can share with us what that looks like?

Yes, I will in the coming quarters. We’ve got sequential improvement certainly from where we began in each of the stores less one; we had one store that struggled a little bit more than the others. And we’re finally starting to get back to the levels of profitability where we were before we started all of this but now we’ve got all the throughput that’s coming. So that piece we think we’ll start begin to see towards the end of the year. And if what I think is going to happen happens, then I’ll be able to, towards the end of the -- for fourth quarter call, give you guys a real good view of exactly what happened but I’d like it to play out before we start sharing all the data with you.

And then in terms of the roll out of the One Sonic-One Experience, the phase one, the CRM, desking tool and appraisal tool and so forth, when you say rollout August 1, 2015, what does that mean? In other words, does that mean you’re going to just be enrolling out across the entire network of Sonic Automotive stores basically going to 100% of the stores? And if so, what kind of a timeframe would that take place over?

That’s exactly what it means. And as I stated earlier, it’s going to hopefully be done by the end of 2016. We will install the CRM, our desking tool and our appraisal tool, which will do nothing but enhance the experience for our guests and our associates in our business. But what we’re not going to do is roll out pricing and all the other things that go along with it, the F&I tool. And so we’re comfortable with what’s going on in Charlotte. That’s why we’re doing the test in Charlotte; that’s why we’ve done it like we’ve done it.

And the plan right now I believe has this completing 40 stores by the end of this year.

Something of that nature, yes.

And then finally, how do we think EchoPark? You’ve talked about the impact in the quarter; you’ve talked about the impact for 2015, but how do you think about EchoPark’s impact on your earnings as you move into 2016 and into 2017? Has it become an incremental headwind or has it actually become a tailwind as you move into 2016 and start driving increased profitability, how do we think about that $0.16 loss for example?

Just the same thing I answered for Murphy a little while ago is it’s -- there is nothing from our perspective that changes our financial forecast that we’ve already put out there. So, when we model for you -- in our five year internal plan, we’re either at or beating our plan. So, we don’t see any of the openings of the future stores or future pods adjusting any of that. If anything, just a little better and we will include that in our guidance for the 2016.

We believe that every time you put a unit out, it’s going to be contributing to that corporate overhead. So we think this all has contribution margin for every store open in 2016. But it definitely depends on how we quickly we get this built and opened.

Our next question comes from David Tamberrino with Goldman Sachs.

It’s been a little bit of news coming out of the CFPB more recently; I think last week was when they announced deal with Honda where the discretionary loan mark up was cut essentially in half, about 200 basis points to 100 basis points. I was wondering if you can discuss how that impacts your F&I going forward from here and then the potential for consent orders with Toyota and Nissan.

A couple of things; we’re obviously working with not only our lending bank partners, also the captive partners to help them with their remediation and their settlements with the CFPB. From a standpoint of the impact, we believe from the very beginning that the CFPB could achieve their objective of eliminating or we do some discrimination but at the same time not hurting the economics of the deal for the dealers and the banks and the captives. If you look at the Honda settlement, basically what they are saying is they want to reduce the cap down to I think 4.25 for 60 months terms and won’t for anything longer than that. But there is another fee if they’re allowed to provide on top of that, a flat fee that they can put on top of that. And I think as long as the captives are allowed to continue to reimburse the dealership at a same level, it doesn’t matter if it’s a percent of the deal, a flat fee. I think we can get to the same number, and not have an impact on F&I at the dealership level. If you look at our average, ballpark average, we’re probably 1 percentage point over our buy rates. And so right now this is at 1.25 in theory that wouldn’t have an impact on us anyway.

And the P&S outperformance, it wasn’t just on a revenue line but also on the margin. What was really driving that year-over-year; I think it was about 150 basis points of expansion?

It’s just mix of business that is an answer; maybe a little bit of a softer year last year as well because if you look at it from an ongoing basis; it’s not that different.

It sounds that if you’re constraint more from the tax side or from the service fee side, I kind of sounded as if there was a little bit of both in some of your prepared remarks and in the response of the questions earlier. I mean is the just a matter of staying open later and pushing some of the warranty work into the later ours in the evening or how do you continue to grow there?

Actually what we’re doing is we’re pushing all the reconditioning hours into the evening and running double shifts especially with Honda and BMW. We’re constrained in some cases from a facility perspective. We have worked really hard this year to hire a net gain of 206 technicians for the company. So, there has been constraint from both sides, but warranty business in particular at Honda with airbag recalls is just crazy. I mean we’re -- we’ve got this coming from every rich direction and whether we try to get them to set an appointment or they are just driving up our shops are really, really full. And we’re doing our best to also take the opportunity to review our guest needs and up-sell and there is an opportunity there. But it eats up the shop hours. And so we really had to adjust those shop hours to deal with that. We have big Honda stores across the country. And it’s taking a lot of work to put us also in a position to be able to deal with it.

And then just lastly on the tax rate for the quarter, there was about at the way we were calculating about 29% effective tax rate versus kind of last year in the 40% range; is there any special or one-time things that not going to be repeated as a result; I mean should we expecting a lower full tax rate for the year?

Yes, it’s 39%; it’s income tax rate.

[Operator Instructions] Our next question comes from the Bret Jordan with Jefferies.

A quick question on slide 32, I guess as we look at EchoPark and maybe some of the other fixed operations, could you give us some feeling and I know that’s a year-over-year comparison, but maybe sequential trends and service at EchoPark? And then as you look at the F&I side of the business you roll out a second pod. Where are you in thinking about creating a captive finance option where you can attract -- retain all of that or be at high profit?

Thanks for the questions. We just started growing in advertising for fixed that EchoPark. We purposely did not start out trying to drive business through, our service drop because we want to make sure that we have all of our reconditioning pieces in place. So that business is beginning to grow sequentially and the first four or five months is really from a customer perspective there is really nothing there. So there is -- the growth percentages look fantastic, but because it’s comping against nothing. So next quarter, I’ll give you an update and just show -- I’ll add a slide that shows how the performance there is quarter-over-quarter, so you can begin to track from a fixed perspective. It’s not big, but it’s certainly growing and we’re getting the same kind of feedback by the way in fixed that we do on sales side. We’re really -- the process extends through our fixed business and so Google and Twitter and Yelp, the feedback has just been fantastic. And Heath, do you want to comment on captive?

Sure, a couple of things. We’ve been evaluating captive finance for probably the last year; we’ve cautiously looking at different alternatives, different partners, how we put that together from just doing a private label kind of financing to all the way to securitization. And we’ll be very cautious about it and slowing that down just a little bit. One of the things you want to see play out is the CFPB. I think we all know we can make money doing it, I think we’re confident that we could execute with right models but that one bogy that’s out there that as someone mentioned is gaining strength as CFPB. So, we’ll see what that is going play out because we don’t open ourselves up to compliance that would make it where you -- it may -- it looks like it makes money now, but may not in future.

And at this time, we have no further questions. And I’ll hand the program back over to Scott Smith back for any closing remarks.

Great. Thank you ladies and gentlemen for joining us today. It was a great quarter for us and we’re very excited about the last year. And we look forward to speaking with you again shortly. Have a great day.

Ladies and gentlemen, we thank you for joining us on Sonic Automotive second quarter earnings conference call. You may now disconnect your lines and have a great day.