Scott Smith - President and CSO Heath Byrd - Chief Financial Officer Jeff Dyke - Executive Vice President, Operations.

Rick Nelson - Stephens Paresh Jain - Morgan Stanley Patrick Archambault - Goldman Sachs David Kelley - BB&T Capital Markets Brett Hoselton - KeyBanc Liz Suzuki - Bank of America Merrill Lynch Bill Armstrong - CL King.

Good morning and welcome to the Sonic Automotive First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions]. As reminder ladies and gentlemen, this call is being recorded today Tuesday, April 21, 2015.

Presentation materials, which management will be reviewing on this conference call, can be accessed at the Company’s Web site at www.sonicautomotive.com by selecting Investors Relations under our Company dropdown box, and then choosing Webcasts & Presentations on the right side of the page.

At this time, I would like to refer to the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information or expectations about the Company’s products or markets or otherwise make statements about the future.

Such statements are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These risks and uncertainties are detailed in the Company’s filings with the Securities and Exchange Commission. Thank you. I would now like to introduce Mr.

Scott Smith, President and Chief Strategic Officer of Sonic Automotive. Mr. Smith, you may begin your conference..

Thank you, good morning ladies and gentlemen. Welcome to Sonic Automotive’s first quarter 2015 earnings call. I’m Scott Smith, the Company’s President and Chief Strategic Officer and Co-founder. Joining me on the call today are David Smith, our Vice Chairman; Heath Byrd, our CFO; Jeff Dyke, our Executive Vice President of Operations; and C.G.

Saffer, our Chief Accounting Officer. I’ll start the call today with an overview of our strategic initiatives. I’ll then turn the call over to Heath for a review of our first quarter financial results, followed by Jeff with a look at our operating performance. We’ll then have some closing comments and open the call for your questions.

With that please turn to slide labeled strategic focus. Our strategic focus has been consistent for the last several years, grow our base business; own our real estate; and return capital to shareholders. This strategic focus will continue through the foreseeable future.

As most people, who follow our company are aware, Sonic Automotive is growing its base business through two very unique and bold avenues that I believe will give us a competitive advantage and differentiate Sonic from others in retail automotive to are customer centric, One Sonic-One Experience and through our pre-owned specialty retail stores called EchoPark.

In addition, Sonic Automotive is working very closely with our manufacture partners on open points and we evaluate acquisition opportunities continuously. Let’s take a closer look at One Sonic-One Experience. Simply put, it's an exercise in the brand building. We’re building a brand that is centered around customer experience.

The objective is to put the power into the customers’ hands, where they can enjoy the automotive purchasing experience with one associate, at one price, in one hour. We believe that our experience will be unique in the industry and it will improve transparency and increase trust and ultimately profitability.

One Sonic-One Experience has been fully implemented in the Charlotte market since the end of 2014. We expect that the companywide implementation will take approximately 36 months. As we guided data related to the implementation in the Charlotte market we plan on sharing this information with you.

There are two basic KPIs that will be good indicators, changes in retail market share and customer retention rates. Well I have more to share with you on this later. Next slide please.

Roughly nine years ago when we pushed again thinking about EchoPark we wanted to build something that was totally unique in the industry and could eventually dovetail with our new car franchise dealerships. This is not your mom and pop used car store. We've invested in and built what will become a substantial national brand and predict sustainable.

We did extensive market research, learned exactly what the pain points are in the automotive purchase experience we set out to eliminate all of them. This is a customer centric model where the customer is in control not the dealer.

Our highly trained team is there to assist customers in any way possible and they are compensated very differently from the traditional automotive retail model.

For the use of process and technology to support enable, we built a customer experience that's unique in the industry, I'm very proud of team of the ladies and gentlemen who have worked so hard to bring this to life.

I am pleased to announce the hub location broadly opened up in the third and we had neighborhood locations one in Centennial and one in Highlands Ranch that are now currently opened. We expect one additional location to open in the Greater Denver market in 2015 and another location in 2016.

We’re currently searching for real-estate again planning for opening the second market EchoPark in 2016. Preliminary sales results are exceeding our internal projections. Jeff will provide more color in this regard. Next slide, acquisitions and open points.

As a continuation of our strategic focus we've been looking at acquisitions and open points through our manufacturer partners. We’re working very closely with a number of our manufacturer partners on open points. We’re pleased to announce that we will complete construction of our Mercedes-Benz open point in the Dallas market in 2016.

Our Audi open point in Pensacola, Florida will open as well in 2016 and Nissan open point in the Greater Chattanooga market will also open in 2016. We continue to work closely with our manufacturer partners in the market representation plants.

We’re very excited about the award of these open points and we believe that they demonstrate the strength of our relationship with our partners. We continue to be active in the acquisition market and it will open the opportunity to have discussions with dealers. Next slide please.

Only our real-estate continues to be a strategic focus for us as well, as you can see in the slide in 2007 we owned zero real-estate, in 2017 we project that we will own approximately 49% of our $1 billion plus portfolio.

Putting these terrific assets on our balance sheet much more efficient need to our capital entering into long-term expensive leases, while the market isn't recognizing the value of these investments we believe that there is significant value here.

If you think about our market cap is roughly 1.3 billion and our real-estate value is roughly 500 million. Next Slide please. Sonic Automotive is committed to returning capital to our shareholders.

Through the end of the first quarter we've repurchased 477,000 shares in average price of 24.89 per share, returning nearly 11.1 million of cap to our shareholders. We currently have an unused share repurchase authorization of approximately 68 million. Also I'm pleased that we’re continuing our quarterly dividend $3.05 per share.

With that I will now turn the call over to Heath for our financial review.

Heath?.

Thanks Scott, good morning everyone. In an effort to better illustrate our performance in both our core franchise business and EchoPark, I will be providing the Q1 financial results for each of these segments separately as well as consolidated. Starting with our franchise operations on Slide 12.

Revenue was up 3.9% with growth in all sectors of the business. Gross profit up 1.3%, driven primarily by fixed and F&I. SG&A as a percent of gross was about 50 basis points, resulting in an adjusted diluted EPS of $0.43, an increase of 7.5%. Next Slide please.

This slide normalizes our SG&A gross for our core business factoring out our investments, our adjusted SG&A as a percent of gross in Q1 is 77.6%, an improvement of 210 basis points from last year. Please look to Slide 15 for EchoPark's Q1 results. As you can see Q1 represents our first full quarter of operations for EchoPark.

Revenue was 15.7 million, gross profit 1.8 million resulting in a pretax loss of 4.9 million and diluted EPS of negative $0.06. Total units sold was 660 for the gross profit per unit of $1,385. Our first quarter performance for EchoPark is within our expectation and forecast on the net loss of 13.3 million for 2015.

Please flip to Slide 17, for our consolidated results. On a consolidated basis revenue was 2.2 billion, an increase of 4.6%. Gross profit 335 million an increase of 1.8%. With the inclusion of EchoPark SG&A as a percent of gross was at 80.6%, resulting in adjusted diluted EPS of $0.37. Next slide please.

Breaking down total revenue and gross, all sectors were up in revenue led by new used and F&I. Net retail gross was down driven by rates. Used gross was flat, fixed up 2.8% and F&I up 7.2%. Next slide please.

Consolidated adjusted SG&A to gross Q1 results were better in variable comp, other variable in rent offset by increases in fixed comp and other fixed expenses related to One Sonic-One Experience centralization and medical insurance. Next slide please.

Summarizing Q1 adjusted and GAAP EPS, core franchise business and adjusted EPS of $0.43 compared to $0.40 a year ago. EchoPark offset EPS by 6 pennies with total adjusted EPS of $0.37 compared to $0.38 in Q1 2014 applying one-time adjustments of 7.3 million results in a GAAP EPS of $0.28. Next slide please.

Capital spend for Q1 a total spend of 47 million for facilities IT and general maintenance offset by 25.6 million in mortgages related to the EchoPark properties in Denver. Estimated 2015 total spend of 247 million offset by 87 million in mortgages. Next slide please.

Liquidity at the end of Q1, we had total liquidity of 243 million compared to 250 million last year. Next slide please. Debt covenants as you can see from the slide we continued to be compliant with all of our debt covenants. With that I’ll turn the call over to Jeff Dyke for a review of our operations for Q1..

Thanks Heath and good morning everyone. It’s my pleasure to update you on the first quarter of 2015 operational performance for Sonic Automotive. As you can see on the slide on a same-store basis we had a year-over-year increase of nearly 7% in new car volume.

First quarter was the biggest new car volume first quarter in the company’s history on a total store basis. Our GPU was $2,018 per unit down $182 per unit driven by our import brands.

As we stated last quarter we’ll continue to be aggressive in our import pricing as we work on pricing algorithms along with our effort to drive higher throughput in our import stores. This effort has resulted in increased market share and profit in our import brands the throughput is driving higher gross dollar levels.

Our new car day supply was 54.8 days and that’s in line with our expectations. Next slide please. To add a little color to our brand performance, you can see on the slide our major brands and how they performed in their local markets versus how the brands performed on an industry basis.

Our luxury and import brands performed well during the quarter while our domestic brands performed below average. We’re excited about our Honda and Toyota performance in particular our Town and Country Toyota, One Sonic-One Experience store leading the way with 36% growth for the quarter and nearly 56% growth from March.

Off note we had a Cadillac facility totally collapse in bad weather. We’re rebuilding the facility and that has caused a slow down for us, the store was down 30% in sales year-over-year heavily contributing to our Cadillac performance. Next slide please. We had another record breaking pre-owned first quarter and a solid 93 units per store performance.

On a total store basis we also had our largest first quarter in company history as well as our largest gross profit first quarter in company history.

At the end of Q4 we told that we were not happy with our days supply volume and waited too long to start buying in the quarter, we’ve since corrected that and our inventory levels could not be in better shape going into the summer selling season. Margins were flat year-over-year but in line with our expectations.

Our pre-owned day supply was 34 days in the quarter. Next slide please. We had another record first quarter in fixed operations gross on a total store basis driving over 156 million in fixed gross. As you can see from the slide on a same-store basis our revenue was up 3.2% with our fixed gross up 4.9%.

We’ve highlighted last quarter that we’re seeing tremendous growth in warranty and I wanted to illustrate that for you today as our warranty business was up 21.4% heavily driven by BMW Mini up 32.4%, Honda up 57.9%, Cadillac up 59.2% and Chevrolet up 39.7%.

This has created a customer pay performance issue for us that we spoke you about in Q4, we’ve been working on rectifying the issue through increased tech levels and adding multiple shifts to help to sort proper workloads which has added more available hours to our customer pay business.

We finally saw a turnaround in the CP gross in March up 2% and look for that to continue in the coming months. Next slide please. Let’s take a look at market share and volume performance of our One Sonic-One Experience stores in Charlotte. Next slide.

I’m proud to announce that we’re back on track at Town and Country Toyota after our Web site issues were resolved; the performance of the store continues to improve. Our biggest issue right now is simply getting enough products to support the volume needs of the store.

We had a 22-days supply ending March and our friends from southeast trader are doing what they can to help -- support the store with more inventory. Our pre-owned volume stood on side of the new car volume growth and is starting to grow with the trades that we’re taking in.

Our economic performance is excelling up 19.5% on a PUR basis and up 53% on a total gross basis in March, this is being driven by our experience guys as they work with the store leadership to improve their performance delivering a great experience that includes then delivering an entire guest experience supported by our proprietary technology and training.

We believe that with the growth of new car volume and our fixed business will see ample off side with more units in operation from this facility. Profitability in the stores is also starting to improve sequentially, we believe if this works at Toyota then it can work with any brand due to the competitiveness of the brand.

More important for long-term growth and profitability is our CSI which is high green-green and the guest feedback is outstanding. Next slide please.

Town and Country Ford is several months behind our Toyota store and while we had a market share slide going on long before the introduction as you can see on the chart, One Sonic-One Experience we’ve seen shares stabilize and April is running nearly 17% as of today.

We look to see further improvement as the store used to the process is in technology and we’ll keep you posted. As of today, our pricing driven technology for the Ford brand is not operational; we believe that we’ll have that result sometime this summer. Like Toyota, the store CSI is fantastic and the feedback from our guest is excellent.

Next slide please. Our Fort Mill Ford store struggled more than any of the other locations driven by pricing and inventory mix which we’re resolving as I stated earlier, our pricing deal for Ford is not yet complete. Market-share in April is nearly 17% month-to-date.

This store is 100% brought into the experience and the CSI reflects that here as well, as goes the guest feedback. Next slide please. Infiniti of Charlotte has done a great job with the install of One Sonic-One Experience and the results are beginning to show, but at the same time here as well.

We’re early on in the rollout and it will take a few months for the store to get settled in to providing the guest experience supported by the technology. Our guest feedback is overwhelmingly positive with this store and the results are starting to show, we’re having a very good April market-share is nearly 52% month-to-date. Next slide please.

The Cadillac brand in the market has been a bit struggle with the total market of selling so few cars between six stores that one or two cars can make a big swing. We like the progress in the store and the leadership of the store has really bought in for what we are going to accomplish.

With this said, the market has flattened out -- the market-share has flattened out and in April we’re running at 51.2% month-to-date with 22 of the 43 Cadillac’s delivered in the marketplace. Our CSI is very good at Cadillac as well and once again the guest feedback is excellent. Next slide please.

As you can read from the slide we’re very excited about the results we’re getting for One Sonic-One Experience. As I’ve stated, the feedback we’re getting from our guest in Charlotte is fantastic and we believe we should allow our associates and our guests the opportunity to experience the technology and applications we’ve developed company wide.

With this said, we’re developing a strategy that will allow us to rollout technologies and will come behind the technology rollout with the remainder of the One Sonic-One Experience elements as soon as we have the pricing inventory tool operational and we have a couple of more months of success under our belts in this Charlotte market.

Next slide please. Let's take a look at the performance of EchoPark. Next slide. We could not be more excited with our initial rollout in first four quarter of operations of EchoPark.

We’re tracking at our forecast and about the only thing that is not going right with the EchoPark launch is the weather in Denver that’s created some opportunities for us in particular with the opening of our neighborhood locations.

As you can see from the slide, we sold nearly 300 units in March look for these stores to continue to grow as we move into the summer selling season. We’re in line with all of our financial forecast and we'll look to begin to build on local neighborhood customer pay fix business in the coming couple of quarters.

We’ve learned a lot with our facilities and will launch a next generation neighborhood store in Dakota Ridge which is Southwest Denver in the fourth quarter of this year which will allow us to have latter operating expense and equally as important quicker build time.

We'll also have two more locations that will open up in the second quarter of 2016 in Denver. We've selected the EchoPark hub two markets and hope to have it operational late next summer. I want to take a minute to thank our team. The work they have done to create one of America's great companies to work and shop has been inspiring.

It's a privilege for me to present their numbers to you each quarter. And with that, I’ll now turn the call back over to Scott Smith.

Scott?.

Thanks, JD. To summarize the quarter, it was a great quarter for the Sonic Automotive team. We experienced growth in each revenue category achieving record results. We gained expense leverage in our franchise dealership segment including One Sonic-One Experience the expenses.

We expect that our open points will drive further growth and we’ll continue to repurchase shares and we’ll be monitoring our capital requirement as 2017 lease maturities approach.

As JD said it is an honor and a privilege to lead our great company, I’d like to thank all of our associates and partners to making us one of America's greatest place to work. With that we will now open the call for your questions..

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

Curious your guidance has changed at all; I think your standalone guidance was 185 to 195 have included costs associated with the brand as well as One Sonic?.

Rick this is Heath. Our guidance has not changed, we are tracking directly with our forecast and the guidance has not changed at all..

At EchoPark I think the estimate there was for a $0.06 loss for the year minus $0.06 for the first quarter with the new market..

That’s correct. We've a pretax in our model, pretax loss for EchoPark is 13.3 million which equates about 16 pennies and we’re on track on that as well..

Curious on the One Sonic-One Experience, you are going to wait for this pricing tool to be perfected before you start to roll that.

Is that right?.

Rick it's Jeff Dyke. We’re going to go ahead and roll the technologies out the CRM, we will roll out the F&I tool, the desking tool all of those technologies are working beautifully and quite honestly our other stores deserve to have them, as well as the guests. So we’re putting a plan together to roll that out.

I'm not yet comfortable, we’re not yet comfortable with our pricing tool. It still got work to do. But that’s not a surprise. And so we’re going to roll those technologies out first and then we'll come behind as we get more comfortable with the pricing tool and we understand that it can handle all the brands.

We've got a lot of brands in the company obviously and we've got work to do to get it ready for all the brands. So no sense in holding up to technology we’re going to go ahead and get that in place, and then we will come behind. So we will stare step the roll out.

And it will make it a smoother roll out for the stores, so that they are not taking on so much at one time. We did that in Charlotte but just to get everything into the stores we think be a lot more effective and lot a smoother by rolling it on out in pieces..

Would the one price selling be rolled out to those stores with the technology or that waits for the pricing tool?.

Yes it would wait for the pricing tool. We won't ready for that until the pricing tool is ready..

Your next question comes from the line of Paresh Jain with Morgan Stanley..

First one is more on management bandwidth here. Now you have talked about availability of manners slowdown of the pricing tool, but all these various initiatives in place that need management attention.

Would you say it may have impacted other aspects of your business? And when do you feel management bandwidth can start improving again?.

It's Jeff Dyke, look there is no question in the very beginning some of our time was spread thin, but I don't think it's had impact on our core business. We certainly would like to have more man-hours available for things like our pricing tool to be able to move faster.

But at the end of the day there is just not enough right kind of man-hours to go around, to deal with that. But it hasn't affected our core business. If you look at our core business other than fixed operations where our customer pay has really been overshadowed by our warranty business.

Our business is solid as a rock and we continue to grow nicely and we’re very comfortable there. That team -- I mean that operations team is focused on that, has really had very little to do with any of the other projects that we've going on..

And then just second on acquisition now Sonic has obviously put good investments in One Sonic-One Experience over the last seven years and the kind of lagging peers with acquisitions.

Is the thinking here that once you have One Sonic-One Experience fully implemented it can help you to be more competitive with the acquisitions in the long run as you bring in these systems and processes that can make both in division multiples look better for you versus your peers?.

This is Scott. I agree completely with you. I think that as we continue to go forward you will see us be more active in the acquisition arena. And we’re currently looking at deals now in the market. We don't have a target on revenue that we’re looking to hit. We’re more opportunistic. And certainly we do a better job at luxury than just about anything.

So that would be our top priority, but we would not be against looking at a platform of deals either. I think if you look at our balance sheet it's in the best shape than it's probably ever been in. And think you'll see acquisitions in the future..

And this is Heath. Just to add to that, as you know One Sonic-One Experience is specifically to create uniformity in technology and process. So obviously once you have that in a hundred locations bringing on new stores is dramatically easier, but you just take that uniformity and you put it into that acquisition..

This is Jeff. We've developed a training team that contained all of that now. So it makes it a lot easier for us to transform a store, and we began to see that as we rolled out the fourth and fifth stores in Charlotte versus the Toyota store which was our first store. So that full transition will happen easier and easier as we go along..

Your next question comes from the line of Patrick Archambault with Goldman Sachs..

I just wanted to follow up on one of the questions. So on the OSOE, you are rolling out certain tools to I think you said pricing -- you said the CRM and desktop tools but not the pricing tools yet.

And so I just wanted to like -- what are the benefits? What are the differences that those franchises are seeing in this kind of like intermediate rollout before the full one price thing gets layered on, on top of that? What are the differences between those stores and your other legacy stores just in that sort of interim period?.

So our CRM tool desk tool and our F&I tool quite honestly make the job a lot easier for our management team and our sales associates or experienced guys to accomplish their job. So they become more efficient and more effective in their role.

The pricing tool in order to be one price you have to price effectively and you have to be right, you can’t be off 10% or 5%. So the pricing tool, it creates a real time now price that allows us to execute. And today for the five stores there is too many man hours that go into pricing all the cars all the time.

Our tool in the future will do that automatically. So our tool is learning right now and we’re making adjustments to it, and I’m just not comfortable with it yet I think this summer some time we'll have the Ford puzzle figured out and we will be ready to begin talk about when we can start rolling that out to the other stores.

But there is no question we’re going to get lift because we’re going to be more effective and efficient just putting in our CRM tool, putting in our Desking tools. The other thing is the CRM tool gives us visibility to the consumers; the CRM tool follows the consumer. So it’s not just store by store.

So if I’m sitting in a Toyota store in other market and the customer comes in that has visited a Sonic store before, I get to see everything that they’ve done within our enterprise and it gives us just a lot more opportunity to communicate with that guest. So the tools are more advanced in what we have in those stores today.

They are more effective and efficient and they will make us better operators..

And lastly, this is Heath. Also we've got two current vendors, right now we have CRM system at the non One Sonic-One Experience stores with the sales associates and a different one for service so combined so you get the whole life cycle of the customer and we also eliminate the expense of those two vendors..

And then one just on the used to new ratio, I know that had -- maybe I’m looking at the numbers but I think that had at the beginning of last year that was tracking really nicely. And then I think to your point which you mentioned on this call you had run into some inventory issue. You just sort of got a little bit tight and now you are better.

But it seems like your used to new was still kind of flat with last year.

So when do we see that accelerating? Is it realistic for the used to new ratio to accelerate a little bit at this stage in the cycle? Just wanted your view on that?.

Yes, that’s a good question. We’re happy with the number of unit per store that we sold for the first quarter at 93. The used to new ratio was actually just a little bit down year-over-year.

That’s all being driven out of import stores and if you look at Honda and you look at Toyota we are not -- we are way outpacing those brands and it’s just putting a lot of pressure. Our used to new ratio shortfall is coming out of imports and our growth in new cars pricing we’re being very aggressive there. That’s where we had our short falling.

It’s not really a short fall we've planned. We’re being more aggressive than our import brand that’s why you saw $183 decrease year-over-year for an NPUR, and it is putting pressure on us. 2015 Toyota Camry LE selling at $17,000, $18,000 and that’s what you’re paying for ‘14 on the used car side it just puts pressure. So that’s what’s driving that.

We’re not concerned about at all as you know, that's something that follow like a clock and that’s not something that is too concerning. As long as we have our constant growth, our units per store are increasing. The import stores are going to do what they do.

And as long as we’re being really, really aggressive on the new car side it’s going to put some pressure on the ratio. But that ratio doesn’t mean we’re selling less cars, it just means we’re selling a lot more new cars..

And one last one just while I have you guys, any sort of initial thoughts on the SAAR? Clearly you had a pretty nice March after a weak beginning to the year.

Just from an industry perspective since you guys obviously see some of the data, do you see that being sustained here into the spring selling season in April?.

So far, as you know we got the weather kind of soft little bit at the end of January and February so I think we've got picked up in March from there, but April is still rolling along and so I don’t think anything is going to change anytime soon.

The economy, everybody keeps saying the economy in Houston is going to drop-off because of oil, I think we’re a lot more insulated today than we have been in the past with that marketplace because I don’t think it's all built on oil anymore, but look at the end of the day, the stores relative and they are somewhere in the 17 million range I think is where we forecasted to 16.5 million to 17 million and then we’re tracking in the 17 million range..

Your next question comes from the line of Bret Jordan with BB&T Capital Markets..

This is actually David Kelley in for Bret this morning. Just a couple of follow-ups here. The first one, I am looking at Slide 37 and the EchoPark unit volumes and I think you just touched on maybe the seasonal trends.

But if you could just maybe provide some color on what you are seeing in unit volumes versus your prior expectations, whether March is tracking ahead of what you were hoping for and maybe on April trends month to date as well. That would be great..

Yes, I mean look we had high expectations going in and so, in or around the 300 unit mark was what we thought we would do and we’ll think we’ll do in and around that market again this month may being a five Saturday month, it's going to hopefully reach 400 and maybe plus that.

So, our inventory is in really good shape, it got a little bit light at the end of February, but we fixed that. And so we've got 850, 900 cars on the ground between those three stores right now.

So, we’re ready for the summer selling season, business is good, we’re meeting our expectations, we had very high expectations to start as we told you about when you're getting ready we didn’t feel like we have any barriers to entry and everything is green light, everything has been really, really good.

Other than Denver the February we had the highest snowfall on record for a month, but other than that EchoPark's done great..

And then switching gears, just a quick question on the leasing market. Maybe if you could provide some color on maybe lease penetration rates you saw in Q1 and expectations for the leasing market going forward through 2015 that would be great..

I mean the leased penetration rates are going up, we’re leasing more cars. Hopefully the word is smarter about that as we move forward, but our expectations are it's going to continue to be a bigger part of our business..

Your next question comes from the line of Brett Hoselton with KeyBanc..

A few quick questions here. First of all, Texas or those areas that are exposed to energy prices, it sounds like you really just haven't seen any change in demand which I think would be consistent what other people are saying.

Is my understanding correct?.

Yes, we really haven’t seen any change whatsoever.

The business is good, we just had a huge weekend down there and I think in the past, Brett the Houston corridor was always so one sided when it came to what was going on in the energy sector, but it's a much more diversified city now and while it certainly has energy influence but that’s not everything is going on down there.

So, we haven’t seen any big issues yet..

And switching over to the One Sonic-One Experience, you've talked about some challenges on the pricing tool side and it sounds like there is a shifts from manual entry to automated entry which I might incorporate some scraping and various other things along those lines.

I guess what I'm wondering here is can you maybe just elaborate a little bit of what is the challenge that you are seeing on the pricing tool side of the equation?.

You got about four hours. Well, I could educate you. So really the biggest challenge is there is three or four different groups that are working on it and a lot of it is having the right man hours, the right people with the right skill sets finalizing some of the inputs.

And in particular when you get to Ford, there are so many stairstep programs, so many different pricing programs that come around and so many different iterations of products that the model is really sophisticated.

Perhaps we should have started pricing tool with Ford because that’s probably as sophisticated as it's going to get and then worked our way to the others, but who knows we couldn’t guess our way right there.

So at the end of the day that’s the big piece and I think over the next couple of months we had a big meeting yesterday and I think over the next couple of months we’re going to be able to figure the Ford issue, feel pretty good about where we are with Toyota and is competitive as that brand is or pricing tool starting to be much more predictable and we also quit using as much as historical data on the new car side and started using a lot more 90-day data to help us with the algorithms we’re trying to plug maybe too much information into the system.

So, this hasn’t been built before, nobody has this, there is plenty of applications out there that tell you what cars are being advertized for but there is none out there who tells you what they are actually selling for and that’s where we have to get to, so that we can cut the transaction time.

So we don't have customers going back and forth and back and forth and back and forth which is something they hate doing. And so we got to have the right price on the car and that we’re getting there. It's getting closer and closer we’re fine tuning it. And hopefully in the coming months we will have it resolved..

And then just switching gears, just EchoPark, I guess my question here is what is your commitment level to EchoPark? In other words, one of your peers who is doing something fairly similar, there is kind of a sense of experimenting and then maybe a year or two from now maybe decide whether or not they're going to go or no go and that sort of thing.

With regard to EchoPark, I mean are you guys -- do you consider yourselves to be kind of wed to this idea all in or is it like look, if it is not working out well for us in a year we may pull back on this?.

We’re not experimenting. And I think I know who you are referring to, they are experimenting and they are doing it in a much different way than what we’re doing. We don't feel like we had any barriers to entry into this.

We feel like there is one major player with 45 million pre-owned cars being sold a year and this is something that we've been working on for the last seven years as Scott Smith said earlier. This is no experiment. We got our second group of stores second market picked out. We even have our third market picked out.

I mean we’re in, we're rolling forward and we’re meeting and/or beating our expectations. So something drastically has to happen for us to pullback on that..

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

This is Liz Suzuki on for John. Similar to what we saw at one of your competitors today, it looks like you are experiencing some compression in new vehicle gross profit per unit despite the higher average selling prices. And you mentioned that you are getting more aggressive there.

But can you talk about the trade-off of margin versus volume and how much you are willing to cut into the new vehicle gross profit in order to push volume and get this subsequent F&I and future parts and service work, et cetera?.

First of all our domestic and our luxury in particular luxury our PURs are fine. We’re not being anywhere near as aggressive but on the import side which is driving a 100% of our GPU decrease we are.

And we’re driving more gross a lot more volume as you saw on the chart, you look at how we’re performing versus Honda for example we’re up 11% or 12%, so I think the brand being up too. And it's paying off for us, and we’re driving more F&I dollars we’re driving more fixed dollars and we’re certainly driving more profitability.

So we also want to have to top volume import store in the markets that we do business in. And we’re driving after that. So unless we see a major reduction in profitability which we obviously haven't we’re going to keep on with our strategy. We are going to continue to be competitive.

The market is competitive for import in particular with Honda and even more so with Toyota from our perspective. And we’re not going to back off with that. It's how you earn your inventory for those guys and if you back off of that you miss out on inventory, it costs you a couple of months worth of business. So we’re not backing off.

We are also heavily investing in our pricing tool and we’re experimenting a lot with our import stores in particular the one here in Charlotte in terms of our pricing tools. So we’re not going to back up we’re going to keep going. And we'll keep you posted as the quarters come along..

And just on parts and service the growth of 3.2% on a same-store basis seemed a little light compared to what we are seeing in the industry but warranty was very strong but it was kind of offset by customer pay which was down.

Can you just talk a little bit about any planned initiatives to improve the customer pay growth since that's the largest portion of your [big shops]?.

And that’s having a little bit having to do with our mix just because we’re so heavily ladened BMW and Honda, and that’s where we’re getting our biggest warranty. We’re hiring more techs right now, we are doing a lot of repair order surveys, really understanding where we are.

We are rearranging putting on multiple shifts and moving out internal work in the evening shifts so that we open up more hours and for our CP business.

And we started doing that as we noticed this happening sort of late fourth quarter, we've been working on that and we finally got a positive bump in our CP dollars in particular in those brands towards March. And so we're up 2% and customer pay in March. And hopefully that trend will continue now with the work that we’re putting in.

It's getting a lot of our attention..

[Operator Instructions]. Your next question comes from the line of Bill Armstrong with CL King..

Just a question on the vehicle mix at EchoPark. Looks like your average selling price for the quarter was almost $24,000 little bit higher than your company average. I was wondering if you could just comment on the brand mix over there.

Is that something that’s still evolving or are you potentially going to maybe little bit higher end mix than in rest of your stores?.

You got to remember it’s Denver market, we’re selling lot of four-wheel-drive SUVs and pickup trucks and it’s driving that price up. I mean we started out with our average cost of sale being somewhere around $18,000 it’s moved north of that just because that’s what the consumer has been asking for.

We talked that we had a meeting on yesterday it’s about as high as we’re going to let it get unless the consumer just keeps pushing us that way. We have one neighborhood store, our Highlands Ranch store that it’s more of the high end neighborhood store so we are carrying a little bit of higher end mix there. We’ve got more high line cars there.

So we’ll see -- I don’t think it’s going to get any higher than that and more than likely will come down a little bit. We just added 300 or 400 cars to the mix. So as those cars come online that’s going to bring our average selling price down and we’ll kind of see how it goes.

But it’s definitely going up since we first started and it is a mix issue you are spot on it’s just we’re selling lot of four-wheel drive trucks and SUVs..

[Operator Instructions]. There are no additional questions at this time. I would like to turn it back over to management for closing remarks..

Great. Well, thank you ladies and gentlemen for joining us today. We look forward to our next call with you. Thank you..

Thank you. This concludes today’s conference call. You may now disconnect..