Sonic Automotive, Inc. (SAH) Q1 2019 Earnings Report, Transcript and Summary

Good morning, and welcome to the Sonic Automotive First Quarter 2019 Earnings Conference Call. This conference call is being recorded today, Thursday, April 25th, 2019. Presentation materials, which management will be reviewing on the conference call can be accessed at the Company's website at www.sonicautomotive.com by clicking on our Company, then Investor Relations, then Webcasts & Presentations. At this time, I would like to refer to the Safe Harbor statement under the Private Securities and 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 by the Securities and Exchange Commission. Please refer to the non-GAAP reconciliation tables in 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, Sonic and EchoPark's Chief Executive Officer. Mr. Smith, you may begin your conference.

Thank you, and good morning, and welcome to Sonic Automotive's First Quarter 2019 Earnings Call. I'm David Smith, the Company's CEO, and joining me on the call today is our President, Jeff Dyke and our CFO Heath Byrd. We are very proud of the results our teammates achieved for the quarter. Consolidated, Sonic Automotive delivered $0.99 per diluted share from continuing operations on a GAAP basis in the first quarter of 2019 versus a loss of $0.05 per diluted share from continuing operations in the prior year quarter. Our franchise business delivered a very solid performance while our EchoPark brand had an historic quarter demonstrating the huge growth EchoPark will achieve as we add additional markets across United States. We expect 2019 EchoPark revenues to exceed $1 billion. We expect EchoPark to retail approximately 50,000 pre-owned vehicles in 2019, which is about five times the volume we were selling just two years ago. Our website echopark.com in our existing network of eight EchoPark locations are drawing customers from 121 markets across United States and growing rapidly as more customers across the nation shop on echopark.com. EchoPark will also improve profitability dramatically as our network continues to mature. For example, just one of our EchoPark locations sold about 1,600 cars in March and was the most profitable store in all of Sonic Automotive for the month. EchoPark's revenue for the first quarter of $249.6 million increased $118.1 million, up 89.8% compared to the first quarter of 2018. EchoPark also improved its pre-tax profits during the first quarter of 2019 by $14.9 million, or up 101.2% compared to the first quarter of 2018. This is before the effects of $1.9 million non-cash impairment charge related to strategic investment changes. Better yet EchoPark was profitable on a GAAP basis in the first quarter of 2019 and we expect this profitability trend to continue. Excluding the non-cash charge, EchoPark pre-tax profit was $2.1 million for the first quarter of 2019. Additionally, EchoPark generated positive cash flow during the quarter of $5 million as measured by adjusted EBITDA, a non-GAAP measure. The cash generation improved $8.3 million or up 247.8% from the use of cash in the first quarter of 2018. EchoPark will now move into growth mode and expand our network to additional locations across the United States. We believe that we can grow EchoPark revenue $500 million to $1 billion annually and continue to grow our profitability without going to the capital markets. We believe this level of growth and doing it profitably sets us apart from other disruptors in the pre-owned auto retail market. From a combined company standpoint, we reduced overall Sonic debt during the quarter by over $139 million from the prior year quarter. Our overall liquidity at March 31st, 2019 was $292.2 million. Today though our overall liquidity is nearly $350 million and growing, not counting the equity in our real estate. The strength of our balance sheet and the cash flows that are being generated by both our Franchise stores and our EchoPark stores enable us to continue expanding the EchoPark footprint nationally with capital generated internally and again without having to raise additional cash from outside markets to achieve our growth goals. Our hiring and training technology, inventory management and logistics, expense control and leadership have all combined to put EchoPark in an exceptional position to capitalize on this highly fragmented industry. Without the pressure from manufacturers and after listening to our guests, we've invested in a customer experience that our guests have wanted and have created a culture of success that showed in our Q1 results. As we have said from day one, there's nothing standing in our way from being exceedingly successful and profitable. Also as noted in our press release today from a total Sonic consolidated basis, there are several items of interest that affect the comparability of first quarter 2019 results to the first quarter of 2018 results. Excluding the effect of these items from both periods, diluted earnings per share from continuing operations for the first quarter of 2019 was $0.39 compared to $0.26 per diluted share in the first quarter of 2018. These results exceeded our internal forecasts for the quarter. See the materials provided in conjunction with the earnings release related to non-GAAP measures, I have mentioned for a reconciliation of these non-GAAP measures to their closest GAAP counterparts. Some other highlights for the first quarter of 2019 on a total Sonic consolidated basis include, all-time quarterly record pre-owned unit sales of 38,463 vehicles. All-time quarterly record F&I gross per retail unit of $1,676. First quarter record F&I gross of $106.2 million, an increase of $12.5 million or 13.4% from the first quarter of 2018. New Vehicle gross per unit of $2,135 up $210 or up 10.9% from the first quarter of 2018. Inventory day's supply for new units was 75 days. Inventory day's supply for pre-owned units was 28 days, which was down three days from the prior year quarter. Lastly, we are also pleased that our Board of Directors approved a quarterly cash dividend of $0.10 per share. The dividend will be payable in cash for our stockholders of record on June 14th, 2019. The dividend will be payable on July 15th, 2019. At this point we would like to open the call to your questions. Thank you.

[Operator Instructions] Our first question comes from the line of Rick Nelson of Stephens.

Thanks, good morning. Congrats. EchoPark, turning a profit. So I look through your slide deck, it suggests that half of those stores are at maturity or you're halfway to maturity? You've got eight stores today. How many of those would be considered mature? And are they the medium or the large store format and how many of those would be profitable generating to your store model?

Hi, Rick. This is Jeff Dyke. Just, first of all, in March all of our EchoPark markets were profitable. So, that was a first for us. We're very excited about that. And, of course, you saw the quarterly announcements. I would tell you that our Dallas store is our most mature store. The thing is every month we wake up and keep selling more and more cars. We sold 1,600 cars out of that store in March and made over $2 million in profit. Then you know and our market share in zero to five year old cars is double-digit, I think, in March. So, we keep growing our share. We've grown from 4.5%, 5% share up to double-digit share. And you move over to Denver-Colorado, I would say, our Thornton store in Denver is the -- and we sort of look at the market not how many stores we have in the market, but our Thornton store there in Denver would probably be our next most mature store. It's doing north of 800 cars. It made nearly $600,000 in March and it's both of those stores are continuing that same level or if not better in April. The fun thing for us is when you get to Charlotte and you get to Houston. In Charlotte -- that store was profitable in its first full month and it did over 400 cars in March and made nearly $300,000. And then our Houston store did 460, 470 and broke-even in the month of March, and we expect that trend to continue and that store to be you know it's in its infantile stage. We opened it in the middle of December, so December 10. So, we expect that store to do the kind of volume that we're doing in the Dallas market. So, really the way we look at it is more on a market basis not how many rooftops we have. That's why we think we can grow half a billion to a billion a year. As we move forward into 2020, we will probably open one more store this year that was not planned. Just because of the progress, remember, I told you in the fourth quarter, we didn't know, if we can get to profitability, if it was going to be the first quarter or the second quarter. But you know our team just continues to mature the rapid rate and our inventory, our pricing, management and all of that is coming along nicely. So, we'll probably get another store open this year, and we'll open a couple of more markets next year. What's fun is those eight stores are serving now over 120 markets across the United States. And we're selling cars into New Mexico and all over the place. And what's happening is the customers are coming to us just because the great pricing, and more importantly our guest experience is just exceptional. And so when you get into a store, which I know, you've visited, it's just a lot of fun. There's a lot of buzz and so you know we've got a lot of really big markets that are out there. If you think about Atlanta and the size of market that is, you think about the L.A. market. You look at the Florida markets whether it's Fort Lauderdale, Miami, you look at Orlando, and you look at Pittsburgh, Pennsylvania, Philadelphia, Pennsylvania. There's just a ton of opportunity and really we haven't even lost our digital marketing piece where the customer can buy the portfolio online. So, that is something, it will come to us in the next quarter or so. And we're getting ready, we put out on the app store, the Apple app store, our CarCash apps that customers can begin appraising their own vehicles, you guys are free to go ahead and download and play around with it. But it should take you three, four, five minutes to appraise your car, another three or four or five minutes to get an answer back from our retail trade center. So, it all just began to come together in the first quarter for us. We've been working really hard at it, praise to the team, they've done a very good job. And now like David said in his opening, we can move from sort of our petri dish stage, if you will, in figuring everything out, and now into a pretty significant growth mode as we move forward in 2019 and 2020.

And, Jeff, the plan to saturate these markets like Atlanta and L.A or do you go into multiple markets with a single store?

Yes, we'll do one single store to begin with. We're already looking at the Dallas market a little bit because as you know, our original store sort of Mid Dallas in the Dallas City and we moved that store 33 miles away and basically doubled its volume. So, what we know is, the consumer really enjoys the guest experience and they enjoy our low pricing. So, they're willing to travel, but that store, it's an old AutoNation megastore, which is a really big facility. We got plenty of acreage, but we're bursting at the seams there. I do see a day when we get 2,000 cars a month out of there, but that's going to be about it, and we might have to open a store in the northern part of Dallas. Won't be as big, but it will provide relief for that location, but we're going to continue to make a lot of money out of the market. So, we would treat L.A the same way. We already have some existing facilities there from the franchise side that we can go into. So, keeps our cost really low, and that's really an important order to buy that really low retail price. And we found a facility in Atlanta not too long ago. So, we're really excited about getting that market open. Hopefully we'll do that in the first quarter of 2020 and then we'll see which markets are going to come after that. Certainly, Florida is begging for -- we're begging for an opportunity down to Florida and attack that market. So, we'll see how it goes, but so far so good. We're very excited about where we're at.

Got you. And is there a plan to attack on the home delivery or is that coming in for that?

You know, not right now, it's not. If you go onto our EchoPark websites and you sort of read what we do and what our model is. We sort of try to figure out what we're not going to do because that I know that sounds kind of ask backwards, but at the end of the day it keeps our costs really low, and by operating in a really low SG&A environment, it lets us you know wait further out and reduce our pricing. So, we look every day on how much cheaper we can sell a car. And by doing that we drive more and more traffic and we have so much traffic coming into the EchoPark stores right now. Our big opportunity is, let's see, if we can do to take advantage of all the traffic that is coming into us now from all over the country.

Plus, seriously that, this is David. Plus our customers will listen to our guests and our customers really enjoy. They like going on our website echopark.com and then they enjoy coming to the store and going through the experience and actually putting their hands on the vehicle they are going to buy and they enjoy that process.

And if there is a becomes a big demand and that's something that we need to do, and we don't have the demand right now that we have then, of course, we got the websites built, and we're ready to pretty much launch all of that. But we got so much traffic coming in right now that we need to take care of what we got coming into the stores before we start thinking about home delivery.

And how many stores are you thinking by year-end 2020 and 2021?

Well, the way that I would get you to look at it is not a number of rooftops, it's just revenue generation. And I think we'll add a minimum amount of half a billion in revenue. We'll open more than likely the L.A market, more than likely the Atlanta market and somewhere East Coast of Florida. It's not Orlando. We're very interested in the Fort Lauderdale, Miami market. That's a huge market and a great pre-owned market. And we got a lot of experience there. So, that's another market that we'll probably be going to. So, if you wanted to put it in store counts, we got eight today. We'll probably open number nine this year and maybe 10 or 11, 12 something like that 11 next year, something like that.

Our next question comes from the line of Colin Langan of UBS.

Great. Thanks for taking my question. Hey, any color on F&I per unit. It was quite strong, I mean, what's driving the outperformance and is that this new level sustainable?

Yes, this is Jeff again. Both sides of the company whether it's EchoPark or the Sonic franchise stores, our F&I continue to improve. Great relationships with JM&A on the Sonic side, the franchise side of the business. They've just done wonders for us and we had really nice increases there year-over-year. Our team is executing very well. And then on the EchoPark side, our ally relationships, Capital One, and all of them in particular ally, they've just done a wonderful masterful job working with us. And we expect that to continue. We think there's more room there. Our warranty penetrations are good, but we think they can get better and our pricing allows for a higher warranty penetration. So, that's helping to drive that F&I number. So, nothing, but upside there.

Okay. And then when we think about new margin, I think, it's the first time in a while they were actually up slightly year-over-year. Is that starting to show signs of progress or you are still a bit worry about how new margins or trend going forward?

No, I mean, it was intentional. We've moved our new car margins up in the first quarter. We made some pay plan adjustments in the company for our sales management team and our associates and we focus very hard on driving our new car margins up. The markets down in terms of overall new car volume and we need to make the gross somewhere. So, we -- I think is our best new car margin in 13 quarters or something like that. So, that's a trend that we expect to continue to see for the remainder of this year. The other thing is, our day's supplies are pretty darn tight. In particular our new day's supply is not bad at all. And you know the -- I've got to give credit to BMW, Honda. Last year it was pretty difficult year for us with those brands, but they've got new product coming out. They've done a very, very nice job with the new product in particular with BMW X7 is doing fantastic for us and Honda is doing great. So, those brands as you know it's a large percentage of our overall profit as we improve margins there. It makes a big difference in our front end margin on new for the company.

So, when you say it was intentional, I mean, what was intentionally you focused on certain models or brands off of that or wasn't?

It was intentional that we adjusted pay plans to more of a -- to a more balanced approach for gross and volume versus a more volume driven approach in particular in our import stores and our highland stores. That's certainly part of it. And then again the new product that's coming out is helping. If you sell a bunch of X7s and you sell those with sticker because there's high demand for them. That's going to make a big difference in your front-end margin and we've got 15 BMW stores that make a big difference and that makes a big, big difference in our overall performance.

Got it. And just, lastly, any thoughts on the Digital strategy right now, I mean, where are you in terms of, I think, your Digital One-Stop launch?

Yes. So, certainly a two-pronged attack. One is our CarCash app and fine tuning how we trade for vehicles and how we buy vehicles off the street for the consumer. And that goes along with Digital One-Stop. I would tell you that we're going to be prepared -- we're prepared to launch Digital One-Stop right now. We're working on a few bank opportunities that we have in terms of lending, but sometime third, fourth quarter, I think, you'll see us making a much bigger announcement in terms of Digital One-Stop, and we were taking that piece of the puzzle in particular on the franchise side where we're prepared to do home deliveries and do some things a little bit differently than we do at EchoPark.

Our next question comes from the line of Armintas Sinkevicius from Morgan Stanley.

Good morning. Thank you for taking the question. Last year EchoPark was you know $0.34 dragged to EPS as we think about 2019 and I know you're no longer providing annual guidance, but what are some of the reasons why we can't just take the 2018 number, make an assumption on new vehicle sales and then add on $0.34 or more for EchoPark?

You could that, I mean, you could absolutely do that. EchoPark performed a little bit better than that trend in the first quarter. But just remember we're going to open up -- we're going to open up another store that we didn't expect that's going to add some expense. So, I wouldn't just extrapolate the first quarter all the way through the end of the year and say you're going to do that four times, but you certainly could wipe last year's number to zero and say there is going to be no drag from EchoPark for 2019 and you would be very safe doing that.

And just to add on, this is Heath. Also not only the new store in '19 as we prepare for 2020. In the third and fourth quarter you're going to have start-up expenses and training and resources to prepare for that opening in 2020.

Okay. So, those are sort of the puts and take to keep in mind?

Yes, and I would tell you, the one other thing that you might add to that is that, at one point in time, our ramp up to profitability for the EchoPark stores was eight, nine months to a year and that now is less than six months. Of course our Charlotte store was profitable in its first full month, but it took Houston three or four months and a lot of that has to do with the level of experience and the team that we put into Charlotte was really experienced, and it just made a world of difference just right away. But our Houston stores now coming along very well and the prep time that we put into our General Manager, our Head of Sales and things like that to go into EchoPark and we pulled some of the experience we already have in the stores, reduces that ramp up time in terms of profitability. So, we don't have to, we don't have to expect this huge carrying cost anymore for a long period of time to get an EchoPark profitable. They're profitable in a relatively short period of time.

Okay. And then my other question is on, when we think about the new stores that you're thinking about opening. How do we think about the balance of you know are they all EchoPark stores or are there going to be some CarCash stores powered by EchoPark? How do we think about that mix on a go forward basis and how do you think about that?

Yes, so no more CarCash store. CarCash is a brand of its own just to trade vehicles and to buy cars off the street, it's our buying unit. Everything you should look at is EchoPark store moving forward.

Okay. So, we have eight EchoPark stores and then CarCash is effectively the app the sort of the procurement of inventory?

That's right. If you go into an EchoPark store you will actually see branded CarCash associates that do all of the inventory trading and using our retail trade center and the applications that we've given them to trade for a car.

Okay. And can you talk about that opportunity to procure inventory? It's early days here, but what sort of light work do you put into place in order to be able to price the vehicle and anyway you can size the opportunity? How many of you know whether it's how many of your vehicles will be sourced this way or just how you think about that opportunity?

Yes. Well, it's a big huge opportunity. CarMax, we've got a lot of respect for you know buys a bunch of their cars off the street and have a good reputation for doing that. We certainly will work down that road as well. But, it's a small percentage of our overall purchases right now and we look to increase that. It's a bigger percentage and quite honestly our franchise store than it is at EchoPark, but we haven't really tried yet at EchoPark. We've been really focused on just getting our rhythms right and getting our processes right to drive our business. Our CarCash app, we're going to offer not only to the consumer, but we're going to offer to other dealers. So that, if we go ahead and put the money in a car for another dealer and that and we put more money than they're willing to put then we'll be happy to come pick the car up and giving the money for the car. So, it's not just an application for the consumer. It's also an application for dealers. And we see more mom and pop small retail chain type dealers using that application than you're going to see automation or something. But we think there's a lot of opportunity to provide that application to other dealers to buy cars in that format as well. If you download --

Okay. And what is the light work that you have to put in to it. You have to sort of hire or train people differently to be able to appraise these vehicles without actually touching the vehicles or there's some sort of software development aspect to it that you need to put in place.

We have a little training video that you can do, but I handed it the app to my wife the other night, and she appraised her own car, she never appraised a car in her life. So, if you go download it right now and just follow the process we're still working out a few little kinks, but we put it out there to let people begin to play with it. I suggest you go download the app and just see how easy it is and how fast we get a number back to you. And what's important here is, we're not using some third-party generator to provide a valuation on a car. That's all coming from our algorithms and from our retail trade center that we built over the last eight, nine years. So, that's a very big difference setting us apart from many of our competitors out there. We appraise cars online that are using some of the mannheim stuff. There's no phone call that's needed to talk to a consumer. Everything is done. On average, less than five minutes you'll get a valuation back for your vehicle.

And you know, this is Heath, you have to download today the version one and the tutorial is coming in the next 30 days. But as Jeff mentioned it's very intuitive and anybody that you never appraised a car before, it's very easy.

And this is David and then anybody who's bought a car, traditionally, a lot of times it would take 40, 45 minutes to get your car appraised, if not sometimes longer. And so it's a big deal and the big savings and time for not just other dealers, but for customers you know they love it, so.

Our next question comes from the line of Rajat Gupta of JPMorgan.

Good morning. Congrats on the quarter and thanks for taking my question. Just had a question on the parts and services piece. Growth, looks like started a little slower than your full-year guidance that you provided on the last call. And also according to some of peers have reported looks like wholesale was a bit of a drag. Do we expect that to pick up through the rest of the year? And secondly I mean are you still maintaining your prior outlook of 3% to 3.5% same-store growth fixed out?

Yes. So let's -- yes we are maintaining that outlook and you know we had some opportunities last year where our fixed operations team really got taken off course. They were focused on some things that they just should not be focused on and we've made some adjustments to that. And we saw some pretty good uptake in our customer pay growth in the first quarter. Our internals were down a little bit, but if you get off into April, and sort of look forward. Our April fixed operations numbers are running at par a little better than what most of the other publics have announced for the first quarter. And so I would expect us to be in that ballpark that they've been running at as we move forward, but certainly that 3%, 3.5% growth rate is well within reason and we should do that or better as the year goes on.

Got it. And just on the deleveraging process and you talked about some stores you divested in the first quarter, you talked about some more opportunities later this year and next year. Could you provide an update on where we stand there and the expected profit from them?

This is Heath. Yes, we did some dispositions as a couple of things we're doing to reduce our leverage and it's really some of it is proceeds from dispositions, but a big part of it is just more prudent CapEx spend, you're going to see CapEx spend really moved from enhancements -- facilities on the franchise to more of the EchoPark build. And so we will continue our capital allocation strategy of reduction of debt and growing EchoPark. We will always be looking at our current assets that we have and if they're under-performing, and we had the opportunity to dispose of those at the right price and put them into a better return that's something that we do every day and we'll continue that for this year and ongoing.

Rajat, this is David. For example the stores that we sold in the last quarter had -- there were a number of facility issues and lease issues and all that, I mean, so the ROI. It was all about ROI to us. We wanted -- we thought, oh man, we could take this money and reallocate that money to something and get a much better return. So, that was a big motivator.

And I think this is Jeff, I think, that's just really, really important as some have looked at us and said my gosh, a few years ago you had 150 stores. Now, you're down to a little less than 100 stores. What the heck are you doing in a market where we hadn't seen new car sales at this level for this extended period of time for a while? And honestly for us it's just an ROI. If we can invest that money in a store, for example, like our EchoPark store at Dallas, it makes $2 million or a $1.8 million a month. Not many auto retail stores in the United States of America making that kind of money on a monthly basis. So, I don't care what kind of store it is. The company is going to put its money where we get our best return on investment, and right now we're seeing a lot of that in our EchoPark stores, but we're also seeing it in our BMW stores, we're certainly making investments there. We're certainly making investments in our Honda stores where we're getting really good ROIs. Mercedes Benz, but then there are others that whether like David said, we have a real estate opportunity or we're being asked to spend just an ungodly amount of money on a facility when we can sell it and get multiples that are not traditional multiples then we're more than happy to take that money off the table in that arena and put it to workforce in another arena like EchoPark or BMW or some of the other brands that are really giving us a big return on our investment.

Understood. Thanks for the clarification. Just lastly if I could follow-up on the SG&A leverage, I mean, pretty solid execution in 1Q. Last time I think you guided to down 100 bps or so for the year. Is there a potential upside to that based on how you perform in 1Q?

Yes, I mean, we're continuing to focus on our SG&A. We made great progress toward the end of the fourth quarter. As David Smith came on board. He's really driven us to drive that SG&A number in the direction that always should have been driven, and we made progress in the first quarter, and we expect that progress to continue not only by growing our growth in EchoPark becoming more profitable. But also being just much more prudent from an SGA perspective on expenses whether it's what Heath mentioned in terms of facility builds or its everyday expenses. We are driving better SG&A and better than expected SG&A through our EchoPark stores.

Yes, I'm not sure, if I heard you correctly, from an adjusted basis, I think, we're down 230 basis points as consolidated from a consolidated basis. And as Jeff mentioned on, yes, you may at EchoPark is actually better than the franchise side and I think the incremental throughput is around 64% at EchoPark when last year was around 13. So, we're doing a good job of leveraging. And if you look at just individual items other than medical, we've had some medical issues with some very few cases, but ITs down $2 million, trainings down $1 million, advertising is down, compensation is down. So, we've really seen the impact of what we did in the fourth quarter flowing through the bottom line.

Our next question comes from the line of Bret Jordan of Jefferies.

This is Mark Jordan on for Bret. Good morning. Just a follow-up on the SG&A. It looks like the majority of the difference here year-over-year came from the other bucket. I know you called out the IT and training is lower spending. What were some of the other main drivers there?

Yes, IT and training are the biggest components in the other bucket.

Okay. And then switching just to the EchoPark here. Just to clarify the $1 billion from EchoPark expected this year. Is that all from existing stores or are we including maybe the new store in there as well?

No. That's just from our existing store base, yes.

Okay. And what's the sourcing mix right now between purchase trade-ins and buying from auction or whatnot?

At EchoPark?

Yes.

Yes. So, remember our model is 0 to 5-year old car. So, we're buying mostly either off the street or from auctions through our buying system, and we look to enhance that with CarCash, but we have a very specific criteria in terms of the inventory that we carry and we also might add run on a really tight day's supply. Our front line day's supply at EchoPark is 15, 16 days, 17 days at most with about a 27, 28, 29 day's supply in the total pipeline. So, we do that on purpose, because it allows us to stay very flexible and take advantage of what's going on in the market today, and not have to worry about taking advantage of something down the road. So, most of that's coming through the auctions at this point for EchoPark.

Okay, great. And then thinking about GPUs, it looks like used GPUs on a same-store basis was down quite a bit year-over-year, I think, it was $100,000. So how can we think about the break out between you know what EchoPark is getting for used GPU and what the franchises are getting?

Yes. So, that's a really good question and remembers the two models are definitely different at EchoPark. Our front-end margins are basically zero. They can run negative of 100 to positive of 100 somewhere in that ballpark. So, when you combine everything it pulls the overall consolidated GPU down, but our franchise GPU is actually up, I mean, we're north of $1,200 a copy, and we expected to just stay in that range as we move. Heath, just correcting me, it was $1,314.

Yes, 4.4%.

So, we're up 4% for the year and we expect that to continue throughout the year. The franchise side is also doing an exceptional job. The overall pipeline days on the franchise side, I think, was actually a day better than EchoPark and that is leading to our PUR increase there. And as long as we keep that up, I mean, we averaged 111 cars per store on the franchise side in the first quarter. We actually sold more pre-owned for the first time in our history in the first quarter than we did new cars. And we expect that to continue, we're at a 109%. Yes, a lot less risk when you manage your inventory that way. And we just -- we're having another fantastic April -- the year just carrying on right through this month and we don't expect that to change. Mark Jordan -- Jefferies -- Analyst

Okay, great. So, kind of sounds like the EchoPark might be around 800 -- 900 or so for GPU?

No. EchoPark is going to be in the zero front-end margin, right, maybe upwards of a $100.

Okay. Yes, I got you.

Yes. And then you're going to find Sonic in the 1,300 range that's why you're seeing the combined consolidated number somewhere in that $900 to a $1,000 range.

Yes, EchoPark is at -- 327.

Yes.

Got you. Okay.

We look at the whole round package. We do that and we've been doing that on the franchise side for years. But whether we get them the money on the front-end margin, we get in the back-end margin, it's the combined number that's the most important number to us and we focus heavily on that at EchoPark. That number somewhere between $2,200 and $2,300 a car and oddly enough it's in about the same ballpark on the franchise side.

Yes, this is Heath; the queue will give you the actual breakdown, so you'll have that.

Okay. Perfect. Thank you very much. And then just one final question on reporting here. Are you guys going to report adjusted going forward or is it going to be because I thought the last quarter it was going to be a switch to just GAAP reporting?

Yes, we are going to the GAAP will be the prominent reporting format, but when we have items of interest that we believe will help the analysts and investors understand what our continuing ops are going to be. We just think there's more transparency, but it will simply be GAAP, will be the first reported, but we want to give you color. So, you understand what continued ops looks like.

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

Good morning, guys. Not surprisingly I have a few questions on EchoPark. So, you kind of danced around this topic a little bit, but when you look at EchoPark, it sounds like almost all vehicles right now are sourced from auction. Is that correct in EchoPark?

It's 90%.

Okay. And then when we think about cars. The remainder would be the CarCash or street purchase?

That is correct.

Okay. So, if we think about the profitability for the vehicles you buy from auction versus the vehicles that you get from your street or CarCash. Is there a significant delta in the upfront GPU or the total GPU per unit?

That's why we want to buy more cars off the street. We certainly will make more money; you miss out on the transportation fees, and a lot of other fees we get, when you buy at auction. So, the more we can shift that mix, the higher the front-end margin will be from an EchoPark perspective.

So, would it be fair to say that you would save as much as 300 to 500 bucks if you do a CarCash or street purchase versus the auctions?

100%. You're thinking right.

And this is David and it's by the way just a traditional part of, I mean, it's been that way for you know the car industry forever. So, that this -- which is why other dealers have advertised that. So, that we love to have our customers just come in and sells their car and they don't have to buy anything from us to do that. That's something that's very important.

Yes, just upside, right. There's nothing, but upside. The more that mix changes, but we want to keep that day's supply really low and stay very, very flexible and the more we can buy through our CarCash app, the more fuel we're going to have in terms of front-end margin.

Okay. And then also on EchoPark, if we think about this, you're at eight stores now and another one opening this year. It sounds like another two roughly planned for next year, I mean, I guess the more success you have, the more you're willing to kind of go out and spend money and develop these stores which makes sense. On CarMax, we have a simple algo or where we think about stuff, if you take same-store sales, and they're up in mid to high single-digits you can open your store count at 10% and not deleverage your SG&A. Are there any kinds of rules of thumb that you can think of that we can use as you're ramping up these EchoPark stores? So, we can understand. If you have eight stores then you open three more in the next 24 months they can absorb the cost that we don't see a deterioration in the total profitability and you're still a little bit profitable in the store and supporting. Just trying to understand how we should really kind of think about the layering of new stores and sort of maybe the bumpiness or lack thereof of the profitability or your losses?

Yes. So, here's the first rule of thumb. The first rule of thumb was we are not going to open up any more stores, so we got profitable. And it wasn't just getting profitable because we had one or two stores. We need to have every market getting profitable and heading in the right direction. So, now, if you look at kind of what we did in the first quarter, we didn't open up any more stores. The question was asked to us earlier, can we just knock off the $0.34 you lost last year call it zero call it a day. The answer is yes, you could actually take that number way north because if we didn't open up any more stores or make any more investments, EchoPark would make a really nice profit this year just based on what we did in the first quarter and as you know January and February was slower months. It's just going to -- we're just going to gain momentum as we move through the year. So, the profitability was exceptionally important to us to get to that number to learn how to do that to make sure that we evolved in the right direction. Now our goal is, we're not going to lose the profitability, we're going to certainly beat our internal estimates from a profit perspective for EchoPark, and we're going to open, we'll open one more store this year continue to profitability, the ramp up for EchoPark, remember, is no longer a year, it's three or four months to guess in the break even range. And so if we open a store for example and we got to the fourth month and it was losing a lot of money and causing us all kinds of issues, we would back off to opening another store until we figured out what the heck was going on there. Degradation of profitability just for the nicety of having great revenue and selling lots of cars is not our business model. We're going to grow profitability, but we're going to do it. We could grow more, John, between now and the end of the year, if we didn't open stores, but we've got to add some carrying costs, we'll probably add about $2 million in carrying costs between now and the end of the year hiring people to get ready for the end of this year's opening and next year's openings. So, you can sort of take that off the trend and get pretty close to where we think we'll be by the end of the year.

And this is David and the other thing to remember is early in EchoPark we were building Greenfield stores whereas now there as you are aware there are a lot of big box stores, there are a lot of locations that are available. And so we can go in and find a location and be open in a much shorter period of time from much less cost, which is huge, I mean, for example the Dallas store. What we acquired for was less than half of what that was originally built for by sitting there vacant and we got it. So, there are a number of examples like that. So, we've proven that you don't have to build a whole huge network of brand in stores to draw customers.

In our Houston store, John went into an old fort store of ours that was losing money not doing well and now we're doing four times the amount of volume out of the store today. And then the L.A. market we got a facility that we're going to go into and it will be cheap in order to do that, in terms of, what we've done in the past. So we're evolving, it's a lot less expensive to open a store for us today. We could do it a whole lot faster. And that's why you see our profitability really coming up. The amount of time it takes to make a profit and the experience we gained over the last couple of years along with our inventory management and pricing cannot stress that enough that we've spent a lot of time working on, as you know, and we made a lot of investment in terms of SG&A into our pricing algorithms and our inventory management systems that are really beginning to payoff for us now. So, I don't know that I would describe the tactical detail that you just did from CarMax's perspective, but the profitability and the growth that we think we're not going to give up profitability below our estimates are just in order to open up a market, we're going to, we'll be very mature about that. And if we continue to open markets like we've done the last two this is going to be a big home run.

And John this is Heath just to add, as David mentioned we are moving this into a growth stage. And as we solidify that growth plan over the next five years, we can start providing more transparency and color on how you can model that plan, but it's crystal clear, wanted to be crystal clear that, this is now into a whole different phase of the growth of this business, and it is going to be a growth business. And as we get that plan in place, we'll provide you some color for modeling.

Okay. And then just one last EchoPark question and then I have one other after that. Is when you think about sort of the success of the dealerships as stand-alone entities? What kind of impact does it have on your local new vehicle dealers that are also running what are historically been a very good used vehicle business? I mean are these kind of coming to you know sort of logger heads or they're actually some synergies from this?

That's what so great about these car business. It's so fragmented there's so much business out there that, for example, in our Denver market we just continue to sell more and more and more cars. And yet our new car stores in Denver, they're having record years too. And so, it's at zero impact whether it's the Houston market whether it's Charlotte, none of our stores have gone backwards in volume, as matter of fact, it was a record volume first quarter for us this year on the franchise side. So, in the markets where we have EchoPark store. So, no degradation whatsoever.

Yes, and this is David, it is important to remember as we've said. We're selling across the nation 121 different markets. So what really happened even though we have eight locations currently a lot of our customers are going to echopark.com? I think most of the transaction they find their car go through most of the transaction and they just come to the dealership to like as I said earlier put their hands on it, look at it, make sure what they want and they take delivery and it's they fly in from -- they do.

Here is a -- great example that we saw 35 cars into the Santa Fe New Mexico market this year from all over. We're on the store, we're close to that. So, just lots and lots of opportunities could be a little bit of a different buyer, I mean, you look at Houston and it might be a little more degradation on the new car side than it is the pre-owned side just because we're selling zero to five-year old cars. And it's a great niche for us. We don't have the carrying cost, the reconditioning costs of all the aging inventories like we do on the franchise side. So it's just a totally different model.

Okay. And one last quick question for me on leasing. We're kind of three years a little more than three years into this massive push that it's coming from the automakers as far as the penetration of new vehicle sales via leasing. You guys are doing a lot of that. I'm just curious sort of what your opinion is in that if you're seeing the mix they sort of you know 25%, 30% of your new vehicles sold via leasing if that's getting any sort of knock on or follow on impact on your business either positively or negatively as we're kind of getting through a lot of these big lease you're starting to come back in a big way?

Great source of product for EchoPark, I mean, look in the traditional lease markets the numbers are all relative. They're about the same. There are certainly big off lease inventories that are out there in particular on the highland side as you know. We take advantage of that. We buy a lot of those cars on the franchise side. We buy a lot of other dealer's cars that just don't do the level of volume that we do on the franchise side. And but then again we got big markets like Texas that just leasing is not is an afterthought that we don't do a lot of leasing there. So, but nothing out of the ordinary that I would tell you from years past in terms of percentages in the markets that have heavy lease i.e. California market some of the Florida markets. End of Q&A

And at this time there appears to be no further questions. I'd like to turn the floor back over to Mr. Smith for any additional or closing remarks.

Thank you, everyone. We appreciate it and have a great day.

Thank you. Ladies and gentlemen, this does conclude today's first quarter 2019 earnings conference call. You may now disconnect and have a wonderful day.