Sonic Automotive Inc

NYSE:SAH

Earnings Call Transcript 2019-Q4

[Operator]

Good morning, and welcome to the Sonic Automotive Fourth Quarter 2019 Earnings Conference Call. This conference call is being recorded today Wednesday, February 19th, 2020. 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 at the top of the page and Investor Relations.

At this time, I’d 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 and 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.

[David Smith, Chief Executive Officer]

Thank you very much. Good morning, everyone and welcome to Sonic’s fourth quarter and full year 2019 earnings call. Again, I’m David Smith, company’s CEO. Joining me on the call today is our President, Jeff Dyke; and our CFO, Heath Byrd. We want to thank our teammates, customers, vendors and manufacturer partners for helping us achieve an all time record fourth quarter and an all time record full year 2019. As we continue to successfully grow both our core franchise stores in our EchoPark pre-owned vehicle business.

Some fourth quarter highlights include an all time record quarterly earnings per diluted share from continuing operations of $1.04 for the fourth quarter 2019, up 104%; all time record quarterly consolidated total revenues of $2.7 billion and gross profit of $393.9 million for the fourth quarter of 2019. EchoPark revenues were a record $308.6 million, up 52%; record EchoPark retail volume of 12,667 units, up 45% for the fourth quarter of 2018; record EchoPark segment income, which was up 145% over the fourth quarter last year.

Some same-store franchise dealership operating results for the fourth quarter. Revenues up 8.5%; gross profit up 9.4% compared to the fourth quarter 2018; new vehicle unit volume up 7.5%; new vehicle gross profit per unit up 1.4% to $2,213 per unit; retail used vehicle unit volume up 9.7%; retail used vehicle gross profit per unit up 2.6% to $1,269 per unit; part service and collision repair gross profit up 6.2%; customer pay gross profit up 10.2% compared to the fourth quarter of 2018; finance and insurance gross profit up 13.7%, compared to the fourth quarter of 2018; and all time record quarterly F&I gross profit per retail unit of $1,809 on a total Sonic consolidated basis.

Some full year highlights. We had an all time record full year EPS from continuing operations of $3.31, up 171% compared to 2018; all time record full year consolidated total revenues of about $10.5 billion and gross profit of $1.5 billion compared to $10 billion and $1.4 billion respectively for 2018; record EchoPark revenues of $1.2 billion, up 66% from 2018; record EchoPark retail volume of 49,520 units, up 68% from 2018; record EchoPark segment income of $9.1 million, up 117% compared to 2018, fiscal year 2019 debt reduction of $238 million. From an expense control perspective, SG&A as percentage of gross profit, excluding certain items of interest was 76.9%, a 210 basis point improvement from the prior year.

Same-store franchise dealerships operating results, we had revenues that were up 5.5%. Gross profit up 1.7% compared to 2018, new vehicle unit volume up 0.6%, new vehicle gross profit per unit up 0.4%, to $2,083 per unit. Retail used vehicle unit volume up 7.7%, retail used vehicle gross profit per unit down 1.8% to $1,272 per unit.

Parts, service and collision repair gross profit up 6%, Customer Pay gross profit up 8.2% compared to 2018. F&I gross profit up 10.3% compared to 2018, all-time record annual F&I gross profit per retail unit of $1,743 on a total consolidated – Sonic consolidated basis.

Some additional EchoPark highlights. In mid-December, we opened our EchoPark Long Beach, California store, our ninth location nationwide and our first in California. Upon opening EchoPark Long Beach sold over 450 vehicles within our first 45 days of operation. This is an excellent start and it speaks to the strength of our unique EchoPark business model and the industry-leading guest experience, which continues to draw customers from over 140 markets across the United States that’s with only 9 existing locations.

For example, while our traditional new vehicle franchise store sells about 100 pre-owned vehicles per month, our average EchoPark store sells well over 500 pre-owned vehicles per month. EchoPark experienced record growth of 2019 and it is poised for further record growth in 2020, as we capitalize on opportunities to expand EchoPark nationwide, which we expect to include three new stores by the end of 2020.

Turning to the balance sheet, as I highlighted earlier, in December, we took advantage of favorable market conditions to complete the early retirement of all $289 million principal amount of our 5% senior subordinated notes, which were due to mature in 2023. As a result of this and other efforts during the years, Sonic reduced our total debt in 2019 by $238 million. Additionally, this debt reduction has significantly improved Sonic’s financial position going into 2020, by reducing interest and improving our debt to EBITDA ratio.

Lastly, we are also pleased to report that our Board of Directors approved a quarterly cash dividend of $0.10 per share payable on April 15, 2020 to all stockholders of record as of March 13, 2020. In closing, our team remains focused on driving strong performance in our franchise stores and increased profits from parts and service and F&I, while continuing to expand our EchoPark footprint nationwide and execute on our plans for omni-channel selling and other digital initiatives. By following this course, we will continue to grow our business and create long term value for our shareholders.

Even Sonic’s record performance in 2019, we believe 2020 sets the stage for us to achieve our long term goal of achieving $20 billion in annual revenue this decade. We are very excited with the progress we have already made and are well positioned to achieve this goal as we continue to execute on our growth plans for EchoPark and our franchise stores.

This concludes our opening remarks and now we’ll be happy to take your questions.

[Operator]

Thank you, sir. [Operator Instructions] Our first question comes from John Murphy, Bank of America. Please go ahead.

[Yarden Amsalem, Bank of America]

Good morning guys. This is Yarden Amsalem on for John. First, I wanted to touch on the new Long Beach store, which seems to perform very well in the first month and half. Can you talk about some of the unique actions you’ve taken there that have helped drive this performance and maybe some of your key learnings for the new stores in 2020?

[Jeff Dyke, President]

Yes. This is Jeff Dyke. Yes, obviously, as we open more stores, we get better at execution from the store openings. This is our ninth store, so we’re nine times better than we were the first – from the first store we opened, if you could look at it like that. And we got off to a fantastic start. As we said all along, the Long Beach area is one of the largest zero to 4-year-old markets in the country. And for us to open with that kind of pace well ahead of our goals, shortens the length that it takes to get these stores up and running and profitable. And we’re very excited. We’ll take those learnings on from our Long Beach to our next opening, which will be in Tampa in the first part of April.

[David Smith, Chief Executive Officer]

Yes. This is David. And just to highlight again, that when you look at 450 cars in the first 45 days, when our average traditional franchise store sells about 100 used in a month. It’s just crazy.

[Yarden Amsalem, Bank of America]

Okay. Thank you. And then just a quick follow-up. You said the first store would be opening in 1Q. Can you provide a time line for the other two stores? Is it going to be in the first half or the second half of the year?

[Jeff Dyke, President]

I can. Towards the end of the first half of the year, we’ll open our second market for this year. And then towards the beginning of the fourth quarter, we’ll open our third. So you’ll have the Tampa market in April – early April. You’ll have an additional market towards the middle of the year, June, July. And then beginning in the fourth quarter, you’ll have our third market.

[Yarden Amsalem, Bank of America]

Great. Thank you. And one more question with regards to your long-term target of 20 – sorry, yes?

[Jeff Dyke, President]

Well, I think it’s important to note and for everybody to remember that as we open those stores, we’ve got about a $2 million drag on each location. So if you think about opening Long Beach at the end of December, you’ll have a little bit of a carryover of that drag into this year of those three stores. So probably for everybody’s forecast, somewhere in the $7 million to $9 million worth of drag that we’ll have, but those stores will also generate, along with the growth of the current set, $500 million to $1 billion in revenue for this calendar year.

[Yarden Amsalem, Bank of America]

Okay. So with that in mind, how should we think about SG&A next year, just given you guys – your leverage is pretty low this quarter, and you’re taking a bunch of actions to reduce cost and just given your continued investment in EchoPark, should it stay relatively the same or maybe improve slightly?

[Heath Byrd, Chief Financial Officer]

Yes. Sure. This is Heath Byrd. If you look at our year-over-year comparison for the full year, EchoPark was running like 77.9% SG&A as a percent of gross, which is 3,600 basis points better. Franchise was at 76.8%, which is 80 basis points better. So the total enterprise for the year was 76.9%, 210 basis points better. We think we have opportunity on the franchise side, where there’s a hyper focus on expense reductions. So we think we have 50 to 80 basis points opportunity on the franchise side of the business.

On EchoPark, obviously, the drag that Jeff mentioned, the $7 million to $9 million, depending on the timing, is going to impact our SG&A. But that will be offset by the maturity of our new stores. And so I expect a little bit of an increase, 40, 50 basis points on the EchoPark side, opportunity on the franchise side for reductions. And so overall, we’re looking at a flat SG&A year-over-year with some potential upside on some reduction expense reductions that we have currently underway for 2020.

[Jeff Dyke, President]

And this is Jeff Dyke. I would also add on top of that. If you look at our two most mature markets in Denver, Colorado and Dallas, our SG&A numbers are running below 60%. Both of those markets last year generated $12 million or more in profit. So the faster we ramp the other maturing markets, this being Charlotte and Houston near term to the three-year mark, we can get into that 60% or below range. And we only have three stores on the franchise side that actually in that SG&A range. So it’s plenty accretive.

We’re really kind of mashing down on the gas pedal, if you will, to begin the growth mode again at EchoPark. After we took a year and really proved out our profitability picture, which we believe we’ve done that, now it’s starting to get back into the growth mode and grow EchoPark. And we can do that now also profitably because we have maturing stores, and we needed to get that done before we really turned on the growth mode again. So – and when you combine all that, the outlook for 2020 and beyond 2021 from our perspective is fantastic.

[Heath Byrd, Chief Financial Officer]

Yes. And I think if you keep – this is Heath again. I think if you keep in mind the expense structure of EchoPark is so dramatically different than the franchise stores that the throughput, once you get to a certain level of maturity, is so much greater. And so as Jeff mentioned, we have stores that are sub-60 SG&A as a percent of gross. And as these others mature and hit that and EchoPark becomes a higher proportion of the entire portfolio, obviously, is going to have a significant impact on the total enterprise SG&A as a percent of growth.

[Yarden Amsalem, Bank of America]

Okay, great. Thank you very much.

[Operator]

Thank you. Our next question comes from Rick Nelson from Stephens. Please go ahead.

[Rick Nelson, Stephens]

Thanks, good morning. On EchoPark, how the units are ramping relative to your own expectations? I know the slide deck refers to [indiscernible]. We did see a pullback in number of units in Q3 to Q4, but would you have expected seasonality at this early start ramp?

[Jeff Dyke, President]

Yes, Rick. This is Jeff Dyke. That’s exactly how you have to look at it. You can’t really look at the used car business sequentially, especially EchoPark as zero to four-year-old cars, we’re competing against the new car segment. We always see a huge new car quarter in the fourth quarter. But if you look at the year-over-year numbers, we beat our expectations in terms of volume significantly. And we expect that same sort of seasonality trend to happen as we move forward.

So you really want to look at the fourth quarter to fourth quarter growth when you’re looking on a same-store basis, which is important as we move forward. So that’s how you got to look at that. That’s why you see the sort of cyclical move in the fourth quarter from the third quarter. And we expect again to have a great big Q1 because the new car business slows down a little bit, and used car business takes off. So you’ll see that same analogy that we had last year. And the same example as last year, you’ll see it again in 2020, and the year is starting off that way.

[Rick Nelson, Stephens]

Okay. So the less mature stores like kind of Charlotte and Houston, are you seeing the seasonality there? Or is the ramp in those stores offsetting the seasonality?

[Jeff Dyke, President]

I mean you sort they’re offsetting the seasonality because those stores continue to ramp, but there’s still seasonality built into the marketplace. So they’re – we’re going to sell seasonally more in the first quarter than we did in the fourth quarter because of what happens on the new car side. But both of those stores are ramping nicely. And really, when you get into the first quarter, they’re taking off even faster. So – and that’s the seasonality kicking in, and we’re seeing that across the board. But because those – the stores are at that level of maturity in that year, first year and half level, they’re ramping faster than everybody else other than Long Beach, who is just taking its own fire.

[David Smith, Chief Executive Officer]

Rick, this is David Smith. I think, as Jeff mentioned there about Long Beach, and he mentioned that it’s our ninth location. We’re getting 9x better at our execution in opening the stores. So I’m saying that we’re training. Our training is getting better. Our acquiring locations and opening those locations is getting better and faster in our ability to achieve profitability quicker is what we’re seeing. So it’s – I think we’re – as Jeff mentioned, we’re getting better and better, and I think we’re going to see that with these new locations that were opened.

[Jeff Dyke, President]

And it’s Jeff again. As we get – as we move faster in terms of profitability, that could allow us to open up more stores than we’re projecting. So depending on how those stores ramp, Tampa acts the same way. Long Beach is acting, and Houston and Charlotte continue to grow at the level. And we have the capacity and the ability to do more than what we’re calling out. But right now, we’re calling out those three stores like we said in the beginning.

[Rick Nelson, Stephens]

One question we get a lot about EchoPark is the comps up kind of replicable. If you could address that, I think that’d be great.

[Jeff Dyke, President]

It’s a great question. We get it all the time, too, replicable by the competition. It’s tough. At the end of the day, if you look at – in the deck, I think we have a slide that shows our day supply. If you look how we handle our day supply, the secret sauce that’s inside of that, that’s going to be real hard to replicate. The guest experience is also going to be difficult to replicate, but managing that day supply to the levels that we do, where you have pretty much a 20-day supply on the front line and another 10 to 13 days in the pipeline in buying that car, transporting it, buying at the right price, doing all the things that we do to make that happen effectively and efficiently, that’s not going to happen overnight.

That’s going to take tens of millions, if not $100 million worth of investment in terms of technology and people and training. And it’s going to take years to be able to do that. I know there are a lot of companies out there that may think that they can, but that just doesn’t happen overnight. And I think you’ve seen a lot of businesses sort of get into our environment and get out or get in and quit growing or not have a story to tell. That’s just not happening here. Our ability to buy the inventory, never had a problem doing that. Our ability to transport it to recondition it, get it ready for the front line and turn it quickly, we do that, I think, as well or better than anybody in the industry. And the numbers show that.

I think it makes it very, very difficult to replicate. You’ve got to have a structure, and the structure has to start from day one to be able to do that or you’ve got a lot of embedded costs that make it very difficult to sell the cars at the prices that we sell them at to drive the guest experience that we do, to drive the back end the way we do and to manage the inventory at the levels that we manage. So while I’m not saying there’s not a bunch of bright people out there that do try, they’re not going to snap their fingers and do it overnight and feel like we’ve got a really good head start in this segment of the business.

[Heath Byrd, Chief Financial Officer]

And Rick, this is Heath. Just to add to that, I get that question all the time. And when we do Investor Days at an EchoPark, and individuals that are not in the industry and don’t understand the difficulty of putting that number of cars through. For example, in Dallas, we’re selling 1,500 cars per month 12 times a year. And the logistics and the process that it takes, not only of logistics of getting the car, the recon, the merchandising, the selling and the analytics that we use to take advantage of the auction markets. Those are things that are high capital-intensive and require a level of expertise that is just not out there. Not everyone has that level of expertise.

[Jeff Dyke, President]

And Rick, Jeff again. We keep blowing through what we say are kind of our targets, our top targets for these markets. Denver and Dallas just keep exceeding our expectations. When you have some store – four stores in that – in those markets that are running combined below 60% SG&A are making $12 million, there’s not a lot of retail stores out there – high-line retail stores out there to do that. And the discipline that goes along with that is just – it’s exceptional. And so it makes it all very hard to replicate.

And the great news is, is Charlotte, Houston are just coming on their heels, we can see it happening. They’re growing. And Long Beach has started off better than all of them did. So we feel like we’re poised to have a great, great 2020. And then 2021 grows even faster. So we’re looking forward to the remainder of this year. Like I said, we’ve gotten off to a great start and expect that to continue.

[David Smith, Chief Executive Officer]

And this is David. As we’re seeing in those mature markets, like Denver and Dallas, a very high percentage of repeat and referral customers, which is very encouraging. So it makes it a lot easier as we’re going forward.

[Rick Nelson, Stephens]

Thanks. That’s helpful. Finally, if I could ask on the franchise side. You sold same-stores this year looks some nice gains. How are you thinking about current in the portfolio?

[Jeff Dyke, President]

In the markets that we solve stores in, the manufacturers were asking us to do huge facility projects. And as we look at the returns and then you look at the EchoPark returns, it made a whole lot of sense to pull the trigger on those stores, not invest the money and invest in EchoPark. But that doesn’t mean, Rick, that if there’s a store out there that fits our portfolio, fits in a market that we want to grow and that we’re not going to be out buying franchise stores either.

So it just depends on the brand and the market that we’re in. It also doesn’t mean that if we get asked to you’ll spend a bunch of money on a facility and the returns don’t look like they match up to what we can do at an EchoPark that we won’t sell that facility. So it’s just – we’ll see how we go through the year. We don’t have any big plans to sell off any stores, and we don’t have anything on the radar screen right now that we’re buying. We’ve got a couple of end points that we’re looking at that we’ve been offered. And so we’ll see how things go from a franchise perspective for the rest of the year.

And then we’re making investments in our franchise facilities. We’ve got big BMW store going up in Houston, Texas right now that we’re really excited about. It’s going to add a lot of a lot of revenue and growth to the company. So we’ll see how things go for the remainder of 2020.

[David Smith, Chief Executive Officer]

Rick, this is David. And we want to emphasize, too, that our paying down of that debt is not slowing us down from growing EchoPark. We can still grow that as fast as we can. And it’s a big number to grow that many stores when we’re talking about the kind of output per store that we’re making. So that – we just want to emphasize that with you guys.

[Jeff Dyke, President]

And if you think about it, we sold $656 million in annual revenue. But we still grew the franchise business significantly, and we did almost $10.5 billion in revenue, which is – we’ve never broken $10 billion in revenue before in our company’s history. So we think we’ve got a great blend of revenue, a great story to tell when it comes to EchoPark in the franchise business. And we’re managing our franchise business better than we’ve ever managed it before. Our relationships with our manufacturers are better than they’ve ever been before. And so there’s plenty of upside there for us in our ops team that are doing just a fantastic job growing that part of the business here.

[Rick Nelson, Stephens]

Great. Thanks and good luck.

[Jeff Dyke, President]

Thank you.

[Operator]

Thank you. Our next question comes from Rajat Gupta from JPMorgan. Please go ahead.

[Rajat Gupta, JPMorgan]

Good morning and thanks for taking my questions. I just wanted to go back to EchoPark. I mean you had $21 million or so in EBITDA in 2019. With the maturity profile you’re expecting for the nine stores that are already open – and we appreciate the color on the $7 million to $9 million drag from new stores. But as those nine stores continue to mature, where do we see this $21 million EBITDA going to in 2020? I mean would it be unreasonable to expect something below $30 million for the full year, just based on the maturity profile that you’ve seen and the ramp you’ve seen from 2018 to 2019? And then I have a couple of follow-ups.

[Jeff Dyke, President]

Okay. This is Jeff Dyke. I think the way you got to look at it is, is that we’re going to grow revs in the $500 million to the $1 billion range. And we are going to have that drag of the $7 million to $9 million. So there’s going to be some – the franchise – the stores that are already open, not the franchise stores, but the existing EchoPark stores that are already open, they’re going to cover a majority of that drag. But I can’t tell you also how many stores we’re going to open other than the three.

We continue to see the progress that we’re making in Long Beach, and we see that happening in Tampa. We’re going to open some more stores. And so that opportunity could change that profile. So what I would tell you is, is that you’ve got $21 million in EBITDA in 2019. And we’re hoping that we’re going to be somewhere in that ballpark again in 2020, but it’s going to be dependent upon how many of those stores that we open, when we get them open, how much drag is there. The markets play a big role in that as we finalize purchase or lease options on real estate. And so if there’s just a timing effect there. So you probably have another year in 2020 of having a little bit of the drag from opening in terms of EBITDA and its growth, whether you open stores or not, but it’s going to be somewhere in that – in the same realm of the ballpark that we were in, in 2019.

[Rajat Gupta, JPMorgan]

So it’s flattish year-over-year? I mean that seems a little low. I mean because – I mean you would still like – I mean you did like $11 million in like the second and third quarter of 2019 in seasonally strong quarters. I mean why would it – I mean why wouldn’t you expect a bigger increase on the stores that have already opened? I mean you grew from 2018 to 2019 pretty significantly, I mean, although it’s coming off a smaller base. Just trying to – it just seems a little low to me. I mean but I appreciate the color.

[Jeff Dyke, President]

I mean we’re not – at the end of the day, we’re being as conservative as we can be and making sure that we provide you guys with a number that work we feel comfortable in getting. And again, it plays a big role when we – the timing of when we open these stores. We have – profitability is grow important to us, and we’ve got to make sure that we time the store and the purchase of the real estate along with the growth of the current nine stores that we have and make that all come together. So I don’t see that – I don’t see the $21 million as overstretching, obviously. There’s certainly some opportunity there. But a lot of it again just depends on when we open these stores, how fast we can move to get those open. It plays a big role with only nine stores being open.

[Heath Byrd, Chief Financial Officer]

This is Heath. What we did in 2020 was we proved this model – excuse me, 2019. We proved this model as profitable. And 2021 is our – excuse me, 2020 is our first year of ramping and growing, and it sets us up for 2021. You start hitting that tipping point where we’ve got enough stores at the level of maturity. So 2021 is when you’re going to see a significant increase in the EBITDA. So we’re – at this point, I think we’re going to be flattish around that for 2020, but we’re trading that growth in that number and EBITDA for growth and expansion of the brand and the locations.

[David Smith, Chief Executive Officer]

This is David. We also want to make sure we continue to deliver the outstanding guest experience that we’re delivering in our other stores. We’re very passionate about this, so the quality of the opening. And the other thing to emphasize is that we have proven that – similar to like Starbucks can open a Starbucks store kind of anywhere, we’ve proven that we don’t have to build a brand-new greenfield EchoPark. We can go into markets anywhere and put these stores and various different facilities that are existing facilities. So it really opens us up to open stores a lot faster than we’ve done in the past.

[Rajat Gupta, JPMorgan]

Got it. That’s helpful color. And on SG&A to growth, if we just look at the franchisee stores and adjusting for a onetime, it looks like SG&A to gross profit was up roughly 80 basis points in the fourth quarter. What were the drivers of that? I mean you talked about some investments you’re making. And then I believe you also have the Digital One-Stop pilot coming in this quarter. So could you just break that down? And then as a follow-up to that, the 50 to 80 bps decline you’re expecting on the franchisee side on 2020, I mean, where are the cost cuts coming from? Could you help tie those buckets as well? Thanks.

[Heath Byrd, Chief Financial Officer]

This is Heath. Let’s focus on the Q4 compare first. That’s really driven – if you look at the full year for the franchise, we were better by 80 basis points. The difference between Q4 2019 and 2018 was basically compensation. Because of our performance in 2018, the compensation was dramatically lower compared to our performance in 2019. And so that’s the reason you see what you do year-over-year for Q4. Going forward, the opportunities, they run throughout our franchise stores. We actually have a task force that has been empowered to go to the stores and identify – I mean if we did – we literally were having this conversation yesterday. $13,000 per month per store is over $0.20 accretive. And so we had them out there looking for every opportunity on the franchise side.

On the corporate side, we are just starting our jury down automation – robotic automation. So there’s some opportunities there as well and using AI in those technologies to make us more efficient. And we’ve already proved that concept. And we think that there is an opportunity for reduction at corporate and regional back office, those kind of functions utilizing these new technologies.

[Rajat Gupta, JPMorgan]

Got it. And just one last one for me. I saw that in San Antonio, you’re piloting the 1 to 8 year-old vehicles versus typically 1 to 4 that you’ve been doing in most stores. What drove the change in thinking there? Or like – and also, like how has it been so far, the pilot program? I mean has there been any issue or any restrictions in terms of like how much you’re able to source in the 1 to 4-year-old vehicle that drove that change? Thanks. That will be all.

[Jeff Dyke, President]

This is Jeff. Actually, the market drove that. We saw a big requirement for cars between that 5 and 8 year-old range, a lot of customers coming in and asking for that. And we don’t have that in the other markets. And so that market, in particular, drove that. We’ve got a lot of trade-ins that come in at the EchoPark stores. So we’re just moving that inventory from Houston and Dallas down to those stores and supporting that environment. And then we’re buying some of the inventory, taking some of the trades from the Sonic stores.

But at the end of the day, purely market-driven. We started in the San Antonio market here within the last 45 to 60 days, and the early results are fantastic, which has been great for us. So we’ll see how that goes here for the next six months or so, but we’re very excited about that move and an opportunity for us to take some of the trades that we’re taking at EchoPark to put into that marketplace and take advantage of a customer base that’s asking for that.

[Rajat Gupta, JPMorgan]

Got it. That’s helpful. Thanks for that.

[Operator]

Thank you. [Operator Instructions] Our next question comes from Bret Jordan from Jefferies. Please go ahead.

[Mark Jordan, Jefferies]

Good morning. This is Mark Jordan on for Bret. Good morning. Just thinking about EchoPark here and kind of going on some of the sourcing, has there been any changes in the sourcing mix? Or is it still predominantly from auctions? And have you seen any increases in some of the CarCash purchases off the street.

[Jeff Dyke, President]

This is Jeff Dyke now. I mean we’re just getting into the CarCash app and the rollout of the CarCash app, which will start primarily in the San Antonio market here in the coming month or so. But now it’s primarily sourced through the auctions. Again, we opened the Long Beach market without any issue, plenty of inventory. We don’t really ever see that being an issue for us, and it never has been. Over the 10.5 years that we’ve all been doing this at Sonic, we had never had any issue sourcing inventory based on our systems and our technology. And so right now, we’re still sourcing in the 90% range – somewhere near 85% to 90% range of inventory through the auctions.

[Mark Jordan, Jefferies]

Okay. Great. And then thinking about like EchoPark’s total gross profit per unit continues to grow here, are you seeing any improvement on the front end? Or is it mostly being driven on the back end?

[Jeff Dyke, President]

It’s actually – for the fourth quarter, it was a majority of the front end was the improvement. I think it was maybe 75%, 80% of the improvement there, something like that. But overall, we’re going to bounce in or around that minus 100 to zero number on the front end, and we’ll bounce somewhere around the $2,100 to $2,200 number on the back end. And so we’ll stay kind of in that range as long as the markets and the pricing are in that range. We adjust with the markets and we keep our below-market pricing intact, which is driving just a significant amount of traffic.

And if you’ve been in one of the stores, you would see just the amazing amount of traffic and independent leads that we’re getting per location. A good example of that is our Dallas location, gets about 10,000 independent leads per month, which is just insane. It’s more leads than we can handle at times. And so we believe our pricing strategy is working. Our inventory strategy is working. Everything is popping right along.

[Mark Jordan, Jefferies]

Okay. Great. Thank you very much.

[Jeff Dyke, President]

You bet.

[Operator]

Thank you. I show no further questions in the queue at this time, sir. I’d like to turn the call back over to Mr. David Smith, Sonic and EchoPark’s CEO for closing remarks. Please go ahead.

[David Smith, Chief Executive Officer]

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

[Operator]

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.