Sonic Automotive Inc

NYSE:SAH

Earnings Call Transcript 2022-Q1

[Operator]

Good morning, and welcome to the Sonic Automotive First Quarter 2022 Earnings Conference Call. This conference call is being recorded today, Thursday, April 28, 2022. Presentation materials, which accompany management's decisions on the conference call can be accessed at the company's Web site at ir.sonicautomotive.com.

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 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 Exchange and 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, Chief Executive Officer of Sonic Automotive. Mr. Smith, you may begin your conference.

[David Smith, Chief Executive Officer]

Thank you, and good morning everyone, and welcome to Sonic Automotive's first quarter 2022 earnings call. As she said, I'm David Smith, the company's CEO. Joining me on the call today is our President, Mr. Jeff Dyke; our CFO, Mr. Heath Byrd; our Chief Operating Officer of EchoPark, Mr. Tim Keen; our Chief Digital Retail Officer, Mr. Steve Whitman; and our Vice President of Investor Relations, Mr. Danny Wieland.

Building on our record-breaking results in 2021, today, we reported record first quarter 2022 revenues and earnings per share, driven by strong customer demand, the continued execution of our operating playbooks, and a team focused on accomplishing our strategic growth plans. We also continue to expand EchoPark's nationwide footprint and digital network, while also strategically growing our franchise dealership network with our acquisition of Sun Chevrolet in Upstate New York. This performance would not have been possible without the amazing effort and execution by our Sonic and EchoPark teammates. Congratulations, and thank you all. We would also like to thank our customers, manufacturers, and vendor partners for helping us achieve another record quarter.

Now, let's briefly review our financial highlights. During the first quarter of 2022, Sonic delivered all-time record quarterly revenues in a 13th consecutive quarter of year-over-year EPS growth. On a consolidated basis, we posted first quarter revenues of $3.6 billion, up 29% from the previous year, and record first quarter EPS of $2.33, up 89% year-over-year. These exceptional results were driven by strong performance across our business amidst a challenging operational environment. We also continue to see further benefits from our initiatives to enhance operating efficiencies, and permanently reduce expenses throughout our entire organization. As a result of these efforts, we reported record low first quarter SG&A expenses as a percentage of gross profit of 67.7%. And on a franchise dealership segment basis, this figure was 59.8%, a 1,060 basis point improvement year-over-year. Our team remains committed to optimizing our expense structure to drive long-term profitability improvements.

Taking a look at the larger industry picture, we have continued to generate record results in spite of the lingering effects of the pandemic, with ongoing new vehicle inventory constraints, inflation, and supply chain issues. Despite these headwinds, we achieved record revenues and profitability in the first quarter as a result of persistent consumer demand, our targeted sales and marketing initiatives, as well as our improved digital channels. Additionally, as an organization, we continue to realize the enhanced operating efficiencies and cost management measures that we implemented during the height of the pandemic, which demonstrates the inherent strength and flexibility of our business model. Based on a positive operating outlook and continued execution of our long-term strategic growth plan for Sonic and EchoPark, we remain confident in our ability to reach our stated goal of $28 billion in total revenues by 2025.

Looking at our franchise dealership business, first quarter 2022 revenues were a record $3 billion, up 30% from $2.3 billion in the prior year. On a same-store basis, franchise dealership's first quarter revenues were up 5% year-over-year, while gross profit improved by 27%. Parts and service gross profit continues to improve, up 10% on a same-store basis, with a 21% increase in customer pay gross profit. Same-store F&I gross profit was up 7% despite a 15% decrease in retail unit volume, driven by all-time record F&I per unit of -- $2,448 in our franchise dealership segment.

We continue to see supply chain disruptions during the first quarter that limited new vehicle production and inventory levels. This contributed to a 15% decrease in same-store retail new vehicle unit sales volumes, slightly better than the industry retail SAAR decline of 11%. Offsetting the lower sales volume, same-store retail new vehicle gross profit per unit was [$6,709] [Ph] plus 134% year-over-year and in line with the fourth quarter of 2021, which typically represents our highest GP quarter due to our luxury brand mix. On a trailing quarter cost of sales basis, our franchise dealership segment new vehicle inventory had approximately 15 days supply or 3,500 units, down from 13,200 units a year ago. Our franchise dealership segment used vehicle inventory had approximately 33 days supply or 10,600 units, up from 9,400 units a year ago.

Turning now to EchoPark, we posted record first quarter revenues of $625 million, up 23% year-over-year. In addition to solid revenue growth, we also continued the nationwide expansion of the EchoPark automotive brand, opening EchoPark locations in three new markets since the end of 2021. Beyond expanding our fiscal footprint in recent months, we have also grown EchoPark's digital network. As previously announced, during the first quarter, we launched our proprietary e-commerce platform, echopark.com in select geographic markets. Since our last earnings call, we have continued to make substantial progress with the national rollout of this digital platform. As of today, the platform has now been rolled out to 80% of our nationwide traffic at echopark.com.

We continue to see positive early results and customer feedback from the new platform with a 30% increase in our Web site conversion rate and out-of-market buyers representing over 70% of our online sales. Given our success to date with our expansion of EchoPark's nationwide geographic and digital network, we remain on target to achieve 90% population coverage by 2025. Upon reaching this coverage level, we continue to anticipate delivering 575,000 vehicles and generating $14 billion in annual EchoPark revenues by the same year.

We remain dedicated to the growth and expansion of our unique pre-owned vehicle concept as we continue to invest in necessary human capital to support EchoPark's future growth. This includes the first quarter promotion of Mr. Tim Keen, the appointment of Stephen Carrelli as Chief Technology Officer of both Automotive and EchoPark. These and other recent C-suite hires at EchoPark represent our commitment to EchoPark's long-term success as a key part of our strategic growth plan for Sonic Automotive.

Turning now to our balance sheet, we ended the first quarter with $785 million in cash and floor plan deposits on hand. Our consistently strong sales performance, cash flow generation and balanced capital allocation strategy have all contributed to our solid financial position on to return capital to stockholders by increasing our quarterly dividend by 108% and repurchasing approximately 1.7 million shares of stock since the end of 2021.

To that end, I'm pleased to report that our Board of Directors approved a quarterly cash dividend of $0.25 per share, payable on July 15, 2022, to all stockholders of record on June 15, 2022. In summary, our record first quarter results reflect strong consumer demand, the success of our targeted sales and marketing initiatives, our enhanced e-commerce network, our continued success in maximizing operating efficiencies throughout our operations and of course, the unwavering dedication of our talented teammates. As we look forward, we remain committed to implementing our long-term strategic growth plans for Sonic Automotive and for EchoPark Automotive. By continuing to execute on this vision, we expect to realize further revenue growth and increased profitability while continuing to enhance our best-in-class guest experience, driving long-term value for our guests, our teammates, and our stockholders.

This concludes our opening remarks, and we look forward to answering any questions you may have. Thank you.

[Operator]

Thank you. [Operator Instructions] We have our first question comes from John Murphy with Bank of America.

[Aileen Smith, Bank of America]

This is Aileen Smith on for John. The first question I wanted to ask is around [technical difficulty] has been pretty disappointing. Can you give a little bit more color on what is going on there? Is it your franchise stores trying to ground more [technical difficulty] flow through to EchoPark, or is it more of a focus on getting the new EchoPark stores up and running rather than running the old ones more [technical difficulty] aggressively?

[Jeff Dyke, President]

Yes. Thanks for the question. This is Jeff Dyke [technical difficulty] inventory from our franchise stores. So, when we first started EchoPark, that was a lesson that Tim Keen and I had learned from a different life. And we built these two businesses to [technical difficulty] not really share inventory overall. So, that actually has nothing to do with it, but to educate in anticipation [technical difficulty] look at this and look at some of the industry headwinds that we're facing, and [technical difficulty] our investor deck. I'll give everybody a second to get there.

And so, with that being said, I sort of broke this slide down into three buckets, the first is just overall -- let's take a look at the industry together and some of the headwinds that we have, there are three main drivers of the headwinds that we're all faced with in the industry today. One is supply chain disruption. We all know that low new vehicle inventories coming from the manufacturers are slowing down the ability to acquire one to four-year-old vehicle. So, that's a major issue. The second bullet point would be rental car company. Typically, what we see at this point in time as rental car companies in the auctions wane selling cars, and we're all buying cars that they had purchased new. The rental car companies are now in the auction lanes buying cars. And because of their depreciation model, they're able to pay more for that -- [technical difficulty] competitive issues and pushing the prices up.

And then finally, the used vehicle price has moved at EchoPark from $21,000 in major headwind here moving up to about $31,000 buying that car in the auction lane. And overall, we are now approaching a price point on used cars in the auction lanes of 70% that of [technical difficulty] payment that a customer would make on a pre-owned car upwards of $490 to $525 a car. And this is causing some major headwinds. Customers either deciding they're going to wait to see what happens, if prices come back down or they're moving because it's so close to a new car payment, they're moving to a new car. [Technical difficulty] John about this on the last call [technical difficulty] one to four-year-old model to a one to eight-year-old model, and maybe you go to nine and 10-year-old depending on the inventories that we can acquire. That is something that we set on the last call. It's going to take us four to -- [technical difficulty] different technicians, putting a few different parts processes in order to handle that. So, that is now in play and a part.

We're also launching, as David Smith mentioned in his opening notes, we're launching our new echopark.com to modernize our e-commerce offering. This offering, and Steve Whitman can talk about it in a minute, it has just been fantastic. The results are fantastic, and we'll get into some of those details here in just a minute. We are also launching our EchoPark brand, Dino Bernacki, our new CMO of EchoPark is driving that process, and we'll launch from a marketing perspective. Remember, we've really never marketed EchoPark. It's just a SEM/SEO play from a low price perspective. And so, our entire brand launch will start this summer, and we're also very excited about that.

So, with some of the action plans and things that we're doing, initiatives that we've taken, what's happened, what are some of the results? As you can see on the slide, we've improved non-auction sourcing from the first last year at 7% to now over 20% this year, and we expect that number to continue to grow, as Tim and his team keep rolling above 30% as a percentage of our total mix, which really brings our margins up and changes the overall perspective in terms of profitability for EchoPark. Our Denver hub location sort of leads the way. They returned to profitability in March, they made $458,000 or having another good April. So, we do see some signs of the initiatives that we're taking, beginning to take hold from a profit perspective. And there is also a slide and we gave you sort of our by month profitability for the first quarter on Slide 22 of the investor deck, you can see that in our mature stores, how that's working.

And then finally, we've achieved the highest -- by building all these stores and doing autotrading, and everything that we've done, we've achieved the highest guest satisfaction scores in the pre-owned competitive segment. So, we know our customers love our process. We understand the headwinds that are not just facing us, but facing the industry, and you've seen that in all the announcements so far. And we believe that the action plans that we're taking are dealing with those headwinds and it's going to take a few months to sort those things out for us. But we're very, very confident in where we are with EchoPark. We're investing in our teammate structure, as David talked about in EchoPark and believe that we've got the right solution for that here in the short term to deal with the terminal that we have today. But again, this is a snapshot in time. Used car prices are not going to continue to appreciate inventory levels. Well, at some point, come back to a certain extent. And that will play right into EchoPark [indiscernible]. So, we're very confident where we are and feel like we have things headed certainly in the right direction.

[Steve Wittman, Chief Digital Retail Officer]

Yes, this is Steve. And just to build on what Jeff said on the new echopark.com. We're very, very pleased with the progress so far. We've actually launched the new Web site to 80% of national traffic now, going to 100% by the end of Q2. The early results are showing us that the new Web site is driving an incremental 30% in conversion rate. So, it's going to drive incremental volume for us as we continue to roll that out. F&I is at $23.25 per unit exceeding our expectations, our F&I penetration online is about in line with what we're seeing in store. And in our mature stores, the stores that started first with this new echopark.com, we're actually seeing F&I penetration higher on those stores than we are on echopark.com versus in-store.

So, very, very good results there. And then lastly, just from a nationwide inventory standpoint, our new Web site enables the consumer to access any car anywhere and have it shipped to them. And interestingly, over 70% of the cars that we've sold online so far have been shipped from another market. So, we're really, really extending our inventory, extending our appeal to consumers, which is in turn driving incremental volumes, so, more to come on the new echopark.com, but very strong early results.

[Aileen Smith, Bank of America]

Okay, fantastic. That's really, really helpful color. I wanted to book it in on one of the industry headwinds -- and one of the larger players in the vehicle market that reported a couple of weeks ago was characterizing some of what they saw in the quarter as being demand weakness, which seems a little odd to us, given everything that's going on from a price perspective suggest that demand still clearly there, but supply is constrained. So, as you think about kind of the affordability dynamics that you mentioned, the lack of supply that's available -- is there anything from a consumer perspective on the demand side of the equation that has you getting concerned that the consumer may be getting exhausted? And is there any other pushback other than price, which would be somewhat understandable?

[Jeff Dyke, President]

Yes. This is Jeff Dyke. The demand is there. I'd disagree with the comment made a few weeks ago. I don't think that's accurate. There's still plenty of demand there'll be 37 million to 40 million cars sold in America this year in terms of pre-owned. So, the demand is there. The problem is, is that we're pushing $500 a month payment, and we used to pay $400 a month payment, and it's too close to the new car pricing.

Look, if you study used cars and you're kind of a used car deep like I am or like we are, you really want your average used vehicle selling price to be one half that of your new vehicle selling price. And in my whole career, it's always run 50% to 55%, somewhere in there. It's at 70%. You can't -- it's too close to the new vehicle pricing and prices are too high, $500 whatever, $525 a month payment. That's just not -- that's out of the norm, and that's what's causing someone to maybe think that there's not a demand there. There's plenty of demand. If the used vehicle prices fall back below $25,000 look out because there's a lot of cars are going to be sold. And a lot of those that are suffering that acquire a lot of cars on auctions, et cetera, are going to benefit in a big way. And I believe that's coming. I just don't think it's coming this year. And it's COVID and Ukraine and all the things that could hit the used car environment is certainly hit and -- but it will recover. And we don't -- we're not going to throw out our whole model, something that we've been working on for two decades in developing here at Sonic Automotive, just because there's a wind -- in a little change in the way that the winds have been growing. And so, that's kind of how we see it; plenty of demand for both free and new car.

[Heath Byrd, Chief Financial Officer]

And this is Heath Byrd. I just want to add to that, to your point about we're not throwing it all out and we're staying the course. When you look at EchoPark, you need to understand that we're still staffed to handle higher volume because we believe having that experienced team in place when the turn happens, is a better investment than having to start over again with new hires. And so, that's one of the drags that you'll see going forward as we get out of the current environment.

[Jeff Dyke, President]

Yes. And when Heath talks about staffing, the staffing for us is the majority in the service department, but we're staffed to sell 10,000 cars, not 5,000 a month. And we're just not going to -- I mean, technicians are very difficult to come back. And so, there are currently triggers that we could pull, but that's under no circumstances under consideration in terms of pulling back. We just don't see a need to do that. We're making an investment in EchoPark, and we're going to continue to make that investment. And so, there are a couple of couple of bumpy quarters. We'll deal with that.

[Aileen Smith, Bank of America]

Okay, great. That's very helpful color. Thanks for taking the questions.

[David Smith, Chief Executive Officer]

You bet.

[Operator]

Thank you. We now have Rajat Gupta of JP Morgan Chase. Your line is now open. Please go ahead.

[Rajat Gupta, JP Morgan Chase]

Great. Thanks for all that clarification on the EchoPark. But maybe like just to expand on that, is there like a contingency plan in place if used hot prices did not moderate. You talked about like five to eight-year-old, [indiscernible] old, but it's going to take time to get to a steady state of mix there and just like transform the business policy. And we currently continue to make a lot of ongoing investment. So, like should we think about your flexibility in terms of like a cost structure or just the capital expenditures going in there? I mean how nimble can you be on that front? And then I have a follow-up.

[Jeff Dyke, President]

Thanks for the question. This is Jeff. Very nimble, I mean we have the ability to stop roll out the facilities tomorrow if we so choose. We can certainly adjust our headcount -- and remember, our model is one to four-year-old, we lose about 300 hours on the front end of a vehicle in normal times and make 2,500 on the pack and net out around $22 or $22.50 a car. One of the things that we're working on right now because the guest experience in our scores are so high, our guest experience scores are so high, we believe we can translate that experience for higher front-end margins. So, we've got a big test coming in our Austin market where we're going to move pricing up, change the mix, add more years. And see if we can't move the minus $300, $400 margin into the positive $500 upwards of $1,000 front-end margin, which then rolls with the amount of volume that we're doing now, that would roll millions of dollars to the bottom line and EchoPark positive EBITDA immediately. And so, I would tell you that we've got a lot of flexibility. We're just being very cautious and very candid with everybody that at the end of the day, we're very confident in our model.

We don't want to adjust it too fast or make a mistake. But if we want to see that this is going to last as cars are going to be a problem like this for the next couple of years. It's easy for us to pull a trigger in effect, the bottom line. And I think if you look at the slide that I told you to kind of look at on page 22, it will show you that net of the new store impact, if you take those, the new stores as we're opening and growing, you've got openings there. you can look at March, and we significantly adjusted our profit losses in the month of March from actions that I talked about earlier that we took sort of late December, January, February and when we talk to you guys about on the call, it just takes a little time to retool, but we do this every day on the franchise side. We sell a lot of used cars at for a long time, and we know how to find the eight-year-old cars. We just are tooled for at EchoPark.

But I would tell you that we're very nimble and can easily make adjustments -- if the only thing in mind right now is positive EBIT. But that's just -- there's more to it than that for us. We're committed to growing our position in the preowned business. We're committed to hitting our 90% levels by 2025. And so, that really doesn't mix well if you start pulling all that back because then we're going to be telling you, well, it could be 26% or 27%, and that's not our intention. And so, it's a little bit of investment on our behalf at this point in time. If we see it's in a longer time, yes, we're very nimble and we can make some very quick changes to adjust the EBIT.

[David Smith, Chief Executive Officer]

This is David Smith. I would just add that, fortunately, with our model and our company, we have these amazing franchise dealerships, right, that are more money than ever. And because of all the ability to adjust that Jeff mentioned, we're making this investment. This is a long-term investment. None of us think that the used car prices are permanently in this strange $30,000 average, $31,000 average price. And so, as the saying goes, we are skating to where the puck is going to be, not where it is right now. And so, we're making those investments and are committed to it.

[Rajat Gupta, JP Morgan Chase]

Got it. Great. Just a follow-up on just auto lending. I'll be more of just a broader industry question. Are you seeing any.

[David Smith, Chief Executive Officer]

I'm sorry, we didn't we couldn't hear the question.

[Rajat Gupta, JP Morgan Chase]

Yes. Can you hear me now?

[David Smith, Chief Executive Officer]

Yes, yes, sir.

[Rajat Gupta, JP Morgan Chase]

Yes. Okay, great. So, I just had a broader question on the auto lending environment, more and more of an industry question. Are you seeing any signs of stress developing there? With interest rates rising, all the lenders able to pass on all of those rate agreements to the consumer? Or is there some stress there just because of affordability where the lender is able to absorb some of those rate increases just to be more competitive. Just curious as to what you're seeing? Are there -- is there any concerns developing on that front?

[Heath Byrd, Chief Financial Officer]

This is Heath Byrd. What we're seeing from a macro perspective is there's not any material impact to the prime and near prime consumers. Are you starting to see a little bit of degradation in credit and portal in the lower income brackets, which is a very small part of both our franchise as well as our EchoPark consumers? So, that you're starting to see a little bit on the lower income, but on the upper tier that we're not seeing anything material.

[Rajat Gupta, JP Morgan Chase]

Got it. Great. I'll get back in queue. Thanks.

[Heath Byrd, Chief Financial Officer]

Thank you.

[David Smith, Chief Executive Officer]

Thank you.

[Operator]

Thank you. We now have Ethan Huntley of Jefferies. Please go ahead when you are ready.

[Ethan Huntley, Jefferies]

This is Ethan Huntley on for Bret. Thanks for taking our questions here. Sorry if I missed it, but have you guys sort of provided any update on your strategic alternatives for EchoPark recently?

[David Smith, Chief Executive Officer]

We have not.

[Ethan Huntley, Jefferies]

Okay. And then, how about maybe when we go to the parts and service segment, can you maybe doubt what the difference in traffic versus average ticket was and just trying to gauge how much inflation had on that segment.

[Jeff Dyke, President]

I'm going to dig some numbers up for you real quick. I mean, if you look just at warranty and customer pay, obviously, customer pay is really rolling up 1% for the quarter. Warranty was at 4%. So, there's -- the way that service works is we have not seen or made major door rate increases across the board. And the parts tickets haven't changed on inventory in terms of pricing in the last -- and certainly not in the first quarter. And so, there would be very little inflationary impact to the overall gross growth, if you will, or to the consumer from a service perspective.

[Ethan Huntley, Jefferies]

Got it, thank you. And then, just maybe lastly here on franchise new GPUs, I think it was close to $600-$700 on a same-store basis. Can you just sort of talk about where you might see those shaking out longer term? Are we maybe going back to levels, or do you think we'll maybe sort of reset at a structurally higher levels once things start to normalize?

[Jeff Dyke, President]

Yes, this is Jeff Dyke. They're not going back to pre-COVID levels. I just don't see that happening. I mean for us, that was a little over $2,000 a car, we're running almost $6,800 a call now. Is there going to be a pullback in some time? Common sense would tell you is inventory comes back to some level, yes, there will be a pullback. But I don't know that it's going to be this year. I certainly believe that in all the discussions that I have with manufacturers are on the dealer boards that I sit on, when you look at the second quarter and the third quarter, the flow of inventory, we're in great shape for April, pretty darn good shape for May. We get to the end of May; things are going to seem to be tightening up. June and July were a little bit of a crapshoot right now in terms of the level of inventory that we're going to be able to expect to come in and straight answers we're not getting, so to speak. And then hopefully, things kind of get better towards the end of the year and Ukraine maybe hopefully get settled, and COVID sort of starts to wane in the rest of the world like it is here. So, we'll see how it goes. But I would tell you, as steady as she goes in the mid-6,000 range, somewhere in that ballpark is where we're going to be for the next couple of quarters, for sure, as inventory constraints continue to drive margin up and create the inflationary issues that we're seeing.

[David Smith, Chief Executive Officer]

Yes. This is David. As you think about it this way, as an industry, our manufacturer partners are motivated to keep inventory levels at a lower they supply than they historically have, right, because they're having to spend less money on incentives. And so, if they can keep -- we can keep a good balance of inventory, everybody wins in our industry.

[Danny Wieland, Vice President of Investor Relations]

And this is Danny Wieland. I'll take David point one step further. If you look back at the first two quarters of last year, First quarter, we ran in or around a 40 days supply of new cars for Sonic, and we were just shy of $3,000 in new GPU. Second quarter, it was a 25-30 days supply, and we were just so $4,000 of new GPU. So, if you take, David, point about what the manufacturers are saying about BMW has said low 20 days, somewhere in that range.

[David Smith, Chief Executive Officer]

They're kind of 15 to 18, somewhere in that ball park.

[Danny Wieland, Vice President of Investor Relations]

So, you talked about what the manufacturers are saying about inventory levels going forward and somewhere in that $3,000 to $4,000 range seems like the longer-term number that we settle into. The question is just when are they able to rebuild beyond the supply chain issues and not run the existing demand for new cars to get it back to that level.

[David Smith, Chief Executive Officer]

But still significantly higher than pre-COVID.

[Ethan Huntley, Jefferies]

Great. Thank you very much. I really appreciate the color here.

[David Smith, Chief Executive Officer]

You bet.

[Danny Wieland, Vice President of Investor Relations]

Thank you.

[Operator]

Thank you. We now have Joe Enderlin from Stephens. Sir, please go ahead when you are ready.

[Joe Enderlin, Stephens]

Hi, guys. Thanks for taking our question. S,o for EchoPark, after seeing some results from the quarter, longer term, how long -- how large are we thinking the five to eight-year-old and maybe nine to 10-year-old vehicles can be as a percentage of the mix? And then, are you seeing any signs of order mix on the franchise side? And then as a follow-up, as vehicles are getting older, how would that impact parts and service over the coming years? As the car part gets older and you have less warranty repairs? Thanks.

[Jeff Dyke, President]

Yes. So, the final question, older the vehicle the more cars are going to go through the service drive, and we're going to have higher service throughput and with capacity, that's fantastic that all works. On the franchise side, absolutely, I mean we're seeing customers keep their lease returns. I've seen a lot of that. That's part of the -- sort of our volume mix because it was a big profit center and a volume center for us in lease returns, especially with BMW and Mercedes, Lexus, and they're a large part of our mix. And so, the car park inside our inventory, for sure, is moving up in age. There's no question about that. We're trading for more cars. The franchise side have bought very, very few vehicles from auction in the first quarter. And when I tell you less than 500, maybe 1,000, it was a really low number. Danny is pointing out that it was 6% of our overall mix self-source was 94% at the franchise from a franchise perspective.

So, yes, the age of the vehicle that we're selling is certainly growing. And what level or percentage we can turn that in at EchoPark, we're just starting to keep those trades. Instead of sending them off to auction, and we're just now beginning to sell those trades. But if you were to take a look at our San Antonio market, where we sell one to eight-year-old vehicles, Tim, I think it represents half to something of that nature, so, about percent of the inventory. So, we might be able to grow it to that. I mean we're having a lot growing vehicles and purchasing because off the street because we've expanded from the 1- to 4-year model. So, we're going to be able to buy more cars off the street. And that kind of fits into the glove of what we're trying to create now, in particular for the next few quarters and maybe on into the middle of next year as we figure out what's going to happen in the used quire inventory environment. So, it could go aside 50% would be my guess. I don't think it'd any higher than that.

[David Smith, Chief Executive Officer]

Yes, this is David. I think it's really important to remember that from a -- if you do a customer-first standpoint and look at the guest experience that our stores that our EchoPark stores are delivering we're trying to look at what customers want. And the customers, they absolutely want the five to eight-year old. Of course, there's a lot of demand for that because the pricing for other reasons and payment. And so, we're trying to fill that demand. We were talking before about demand. There's just a huge amount of demand. So, we want it rather than sitting that out by just focusing on the one to four-year-old cars.

[Heath Byrd, Chief Financial Officer]

And this is Heath. I'll add to that. If you look at the total annual used vehicle volume and you segment out the five, six-year old, it's about 18% but that is historical. And to David's point, as these one to four-year-old, which is about 15 million of the total -- people are moving from that one to four to the five, six, eight-year-old vehicles. So, that's sort of from a big perspective, the percentage of those oil vehicles is about 18%.

[Joe Enderlin, Stephens]

Super helpful. Thank you, guys. That's all from me.

[David Smith, Chief Executive Officer]

Yes, sir. Thank you.

[Heath Byrd, Chief Financial Officer]

Thank you.

[Operator]

Thank you. [Operator Instructions] We now have a follow-up question from Rajat Gupta of JPMorgan. Sir, please go ahead when you are ready.

[Rajat Gupta, JP Morgan Chase]

Great. Thanks for giving me another question. I just wanted to give an update on the seasonality comments that you made last quarter. I think you mentioned 1Q should be around 15%, just curious like has anything changed there in terms of the gross profit is that like a good line to you?

[David Smith, Chief Executive Officer]

Did you say the seasonality --

[Jeff Dyke, President]

Of earnings?

[Rajat Gupta, JP Morgan Chase]

Yes, yes, seasonality of earnings.

[Danny Wieland, Vice President of Investor Relations]

Sure. This is Danny. We pointed to 15%, 20% of the first -- of the full year EPS typically comes from the first quarter. I think with what's going on with the elevated GPUs and the uncertainty for production in the back half of this year, you could see that vary somewhat. But I think that we had a pretty good understanding internally of the quarterly cadence that we see in particularly the luxury mix. I think what may be varied this year a bit is that because of the delay in delivering vehicles, that luxury mix that we would normally see in the fourth quarter.

We did some of deliver some of those vehicles into the first quarter as you're seeing elevated GPUs in the first quarter was normally those we go backwards. But I think all in all, we expect for that generally to hold true to where the first quarter is our lease contribution for the year, second and third or in fairly equivalent. And then the fourth quarter is our biggest quarter because of that luxury rating. And if we start to see inventories improve, if not come back and improve throughout the year, then we'll get that similar kind of seasonality as we go -- and obviously, the EchoPark component of that is a little bit of a variable that I think was a little bit of a disconnect in the first quarter actuals.

[Heath Byrd, Chief Financial Officer]

And I do think that to Danny's point, the fact that we have pre-sold some of these vehicles, and so we pulled basically cars that were sold last year really are recognized in that first quarter. So, this may be a very unique year where the percent that we earn in the first quarter is a little bit higher than it normally is.

[Jeff Dyke, President]

But when we define what a little bit higher is, call it, 23% in that range versus the 19% that we gave you back in February. And there's some people that listen to what we have to say. It's great. There's others that are so far off the radar screen that they're obviously not paying attention, and we can't fix that. We can't out that. So, somewhere right in the 20% to 23% range we're going to be. And Danny got it up, but it may be 22% in the first quarter, 24% and 25% in the second and third, and we'll see what happens once we get to the fourth quarter. But we gave that kind of feedback in February. We're sticking to that same story and we'll see how they shape up for the year.

[Rajat Gupta, JP Morgan Chase]

Understood. Great, thanks for the color.

[David Smith, Chief Executive Officer]

Yes, sir.

[Operator]

Thank you. I would like to now hand it back to David Smith for some closing remarks.

[David Smith, Chief Executive Officer]

Thank you, and thank you everyone. And we appreciate your participation in the call. Have a great day.

[Operator]

Thank you. This does conclude today's call. Thank you for attending today's presentation. You may now disconnect.