Sonic Automotive Inc (SAH) 2007 Q1 法說會逐字稿

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 speaker's remarks, there will be a question and answer period. [OPERATOR INSTRUCTIONS] As a reminder, ladies and gentlemen, this call is being recorded today, Tuesday, May 1, 2007.

Presentation materials which management will be reviewing on the conference call can be accessed on the company's web site at www.sonicautomotive.com by clicking on the Four Investors tab and choosing Webcasts and Presentations on the left side of the monitor. At this time, I would like to refer to the Safe Harbor statement to the Private Litigation Securities Reform Act of 1995. During this conference call, management my 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, the company's 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 2007 conference call.

I'm Scott Smith, the company's President and Chief Strategic Officer. As a co-founder and shareholder it's an absolute pleasure and honor to once again serve our company as its President. I'd like to extend my social security thanks an appreciation to Jeff Rachor for his years of service and congratulate him on his new role. We wish Jeff our very best on his new endeavor and are thrilled he's continuing to serve our company as a director.

Joining me today on today's call is the company's Vice Chairman and Chief Financial Officer, Mr. Dave Cosper, and our Chief Operating Officers, Jeff Dyke and Jim Evans. Jeff and Jim are responsible for our day-to-day operations in the field and will be available for questions later on in the call.

I'll some broad performance highlights and provide an update on our strategic initiatives and I'll turn the call over to Dave to provide more color on the numbers for you.

First, the presentation material for this call is posted on our web site, www.sonicautomotive.com, and can be accessed by clicking on the For Investors tab and choosing Webcasts and Presentations on the left side of the screen. Our comments today will be linked to the slides on this site.

The quarter in review. This morning I'm extremely pleased to report Sonic Automotive has once again delivered on another sound quarter results. As mentioned in our last conference call, Sonic Automotive has never had a more aligned and talented group of associates, and I think our performance this quarter showcase not only the talent of our associates but highlighted the wisdom of our strategy and our ability to deliver.

Net profit from continuing operations improved 10%. Our focus on executing our strategic initiatives, particularly in used, F&I and fixed arenas, has once again allowed to us expand our same-store revenue and expand our operating margin as well.

SG&A was down 90 basis points and we ended the quarter with a debt to total capital ratio at 38.8%.

Please turn to the next slide.

To discuss our strategy in motion -- our Used Vehicle Champion store process is essentially 70% rolled out across our organization. We continue to see significant opportunity for Sonic to grow organically in pre-owned. Our used to new ratio in our Champion stores improved to 0.53 from 0.49, a 9.2% volume increase year-over-year on a same-store basis. Our Standard F&I menu is 98% rolled out across our organization around yielded an impressive 6.3% same-store increase over the previous year. We continue to see significant opportunity for Sonic to grow organically in F&I through increased transparency and consistent sales presentation. Our Fixed Ops, which is one of our core strengths, with our overall service absorption reaching 88% for the quarter improved over 100 basis points year-over-year. Our DMS rollout is still on schedule to be completed by late October, and digital marketing continues to be a focus of Sonic Automotive, as 26% of all of the vehicles that we retail originated via internet leads. We view this as a great venue to improve customer retention and margins over time. We're on pace to hit our stated acquisition target by the end of the year, and we continue to act opportunistically and disciplined.

One of our Sonic promises is a very simple equation that is truly the road map to our success. Quite simply, it's associate satisfaction plus customer satisfaction plus manufacturer satisfaction equals our return on investment. Basically, if we take care of our associates, customers and manufacturers, as we should, then our financial success is virtually guaranteed.

At this point, I'd like to turn the call over to Dave for more color on the numbers. Dave?

Thanks, Scott.

Good morning, everyone.

This slide shows a trend I'd like to see.

First off, revenue growth. Revenue's up 3.6% but more important gross profit increased at a faster rate. We're retaining more gross on the revenue we generate. Operating profit improved even more, up nearly 8% as we continue to make progress on cost control, and operating profit margin increased 10 basis points to 3.3%. Finally, net income was up 10%, although floor plan costs increased year to year, this was partially offset by lower interest expense on our long-term debt. We're benefiting from our improved balance sheet.

Turning to the next slide, this slide shows our same-store sales performance. Overall, same-store revenue increased 3.3% for our key business segments. Wholesale revenue was down nearly 14% as we continue our trend towards retailing more used vehicles. Total new car revenue was up 2.1%. New retail revenue was up 2.3%. Our new retail volume was up slightly for the period, but retail volume for the industry declined by 4%. Same-store used vehicle retail revenues were up 5.1%, driven by improved sales performance at our Champion stores. I'll talk more about that on the next slide.

Continued focus on customer satisfaction, executing our standard sales process and increased stall capacity are driving improvement in our fixed operations business. Total same-store fixed operations revenue increased by 5.4%. Same store customer pay revenue and gross were up 8.8% and 9.7% respectively. Same-store F&I revenue was up 6.3%. We are already are seeing the benefit of our standard F&I menu and enhanced selling process.

Turning to the next slide, this slide provides more color on our used vehicle sales performance. As you can see, the Champion stores improved substantially. Volume was up 9.2% as Scott mentioned and our used to new ratio improved 0.53 from 0.49. I'm also pleased to see good progress in California and with our luxury brand. Our used to good ratio increased to 0.33 from 0.32, and our luxury ratio increased to 0.56 from 0.50, with healthy increases in nearly every luxury brand. These results are very encouraging and we believe we'll see the full benefits of the Champion store rollout as we enter next year.

Turning to the next slide, a little bit more on used vehicles. I wanted to touch again on points we made in our last call, brand diversity and geographic diversity.

First with luxury brands. As you can see, our luxury brands comprised 54% of our used retail revenue. As explained on our last call, the margins on these vehicles are lower than domestic and other import brands, due to the fact that the average sales price is approximately $28,000, almost double our domestic and import line prices. But importantly, the gross profit per unit at $2300 is substantially higher. Sales improvement in new stores really impacts bottom line profits.

On geography, and this isn't shown on the slide, but 21% of our used revenue is derived from our dealerships in California where we have very little domestic exposure and a great deal of luxury stores. As I showed on the prior slide, we're making progress on improving used vehicle sales in California, and there's more volume and profit opportunity to come.

Turning to the next slide, our electronic F&I menu's been rolled out to the vast majority of our dealerships, although the training process will continue for some months. As you can see, the impact is compelling. The menu provides transparency, and enables our F&I managers to present all our options in a quick and easy fashion. We are pleased with the profit improvement we've seen and feel there is more upside.

Next slide, please. Our fixed operations continue to be a bright spot for us. At the dealerships where we have invested in the additional stall capacity, service gross profit has increased 26% from last year. While satisfying to realize a good return on investment, it's also rewarding to see how we have improved customer satisfaction. I'd like to pint out all our regions experienced solid increases in customer pay revenue and gross for this quarter.

Turning to the next slide, this slide shows our SG&A performance. And SG&A as a percent of gross 77.4% for the first quarter down 90 basis points from the prior year. Our SG&As a a percentage of gross continues to benefit from our improvement in same-store sales and margins. Again this quarter, I was pleased to see that absolute cost levels were reduced for certain cost elements; in particular, compensation. Lower costs and higher gross are what we strive for.

I'm also pleased to note that our fixed absorption continues to improve even as we continue to invest, install capacity and store upgrades. Fixed absorption reached nearly 88% for the quarter.

Next slide. We ended the quarter with a 54-day supply of new vehicles, substantially better than the industry average of 67, and up slightly from a year ago. We feel we're well positioned for the summer selling season. Used car ended the quarter with a 37-day supply, equal to our target, better than a year ago. With our Champion store process, we're able to maintain good control over our inventories.

Next slide. We ended the quarter with a debt to cap ratio of 38.9%, down 50 basis points from last quarter. As I've stated in the past, our target structure is 35% to 40% debt to capital. Of course this will be lumpy, depending on acquisitions, but that's where we will be over time.

We're in negotiations for the sale of Cornerstone acceptance, our small subprime lending operation. I'm hopeful a successful transaction can be consummated in the near term. We ended the quarter with about $31million of net receivables from Cornerstone, and the successful sale of this business would reduce our debt to capital ratio by just over one point.

By early June, we plan to close on a mortgage loan at one of our premier luxury stores. This would be our first store that we truly own and several other stores we'll be looking to finance in this manner through the balance of the year. Very excited about the 150 plus basis points of savings from mortgage financing versus lease financing.

Turning to the next slide. Our portfolio enrichment strategy continues to progress. For the quarter, our luxury brands comprised 52% of total revenue. Luxury and imports combined reach 83% of our sales. As we've said, we would like to begin to grow again through acquisition to leverage our management infrastructure and further improve our sales mix.

During the quarter, we acquired Park Place Jaguar and Land Rover in Houston, Texas, a dealership with annual revenues of $80 million. This fits nicely with our momentum platform. Additionally, we plan to acquire two luxury dealerships, with combined $310 million in revenue before the end of the second quarter. We're committed to a disciplined, prudent acquisition strategy and have a strong pipeline of potential candidates. I'd like to point out, how much, that our same-store performance continues to be solid and as a result, we can and will be patient and opportunistic with our acquisitions.

While we continue to benefit from our portfolio enrichment strategy, I'm pleased to announce for the third quarter in a row, our domestic brands improved their bottom line profits. For the quarter, our strongest regions were Alabama, Tennessee, the Carolinas and Dallas; Las Vegas region continues to be hampered by declines in housing prices, and our Michigan platform continues to experience a difficult economic environment. In terms of total revenue, our strongest brands for the quarter were Toyota/Lexus/Scion and 18.1% total revenue, BMW/MINI at 16.86%, Honda/Acura at 15.2%, Cadillac at 10.2% and Mercedes at 9.5%.

With that, I'll turn the call back to Scott.

Thank you, Dave.

To summarize, we're going to continue the execution of our key initiatives of our Used Vehicles, Fixed Ops and F&I, executing a disciplined and prudent acquisition strategy targeting 10% to 15% of revenues. Our strategy is sound. Our team is focused on delivering relates. Our top priority is improved profits and cash flow.

Once again, we're pleased with the quarterly results and we've proven that Sonic can deliver on promises and expectations. We're reaffirming our full-year EPS guidance of $2.48 to $2.58 a share. Our dividend will remain unchanged at $0.12 per share, payable on July 15, 2007 for shareholders of record of June 15, 2007. As always, I'd like to thank all of our Sonic associates for their hard work and dedication. Your efforts made all the difference in quarter. Additionally, I want to thank each of our manufacturing partners for continued support, and I would like to thank our investors.

At this time, I would like to open this call for your questions.

[OPERATOR INSTRUCTIONS]

We'll pause for just a moment to compile the Q&A roster.

Your first question comes from John Murphy with Merrill Lynch.

Good morning, guys.

Good morning.

Hey, John.

Quick question on the guidance. The $2.48 to $2.58, the last time you gave that that was pre-acquisitions. Is that still the case?

That is still the case, yes.

So the $80 million that you did in the quarter, and the $300 million that you are expecting to do, the $310 million are not included in the guidance range?

They are not included. We're very close on these deals but we still need to work out some things, including getting manufacturer approval. We haven't firmed up the projections for this year yet.

Okay. Then if we could just get into the used initiative or the Champion. It sounds like you're pushing the volume more so in those stores on used. I mean, we're up to 0.53 used to new. How high can that get? I mean, can you get to, you know, one to one or is that just way too far? Clearly that can't happen quickly but over time, can that happen?

Yeah. I think when we initially set off on this, we were striving to get to the sector average, and the sector average is probably 0.64, 0.65, 0.6 to 1. I'd like to get there first. We're off to a great start. I see a lot of improvement. I think there's more to come, but one step at a time.

Okay. Then if we think about the F&I PDR, you had pretty good improvement there. What is sort of the ceiling you think on F&I PDR, or is this a ceiling and how much opportunity is there during the coming quarters in the year?

I think last year our average per unit was $953 a unit. We've stated a target of getting an extra $50 for this year. Based on this performance thus far given where we are in the training process, you know, I think we can hit $1000. And maybe a little more upside. But we've always been very cautious in how we handle our F&I business and compliant and transparent. Pleased with the early results. We'll see how it goes as we continue to train our people.

If we think about the acquisition market, sounds like you've got two good ones in the hopper. What else are you seeing out there? We're sort of getting mixed messages from different dealers. It's probably market-specific but some people are saying it's getting a little bit tougher, more expensive, and others are saying it's close to the way it's been the last few years. Could you add any color on that?

I think it's pretty much the same where it's been. These are car guys we're dealing with. They're going to try to work the best deal they can and so are we right back. We've got a good analytical capability. We're looking for deals that fit our profile and beat the return guidelines that we've set. Thankfully, we're patient and we're sitting back until we find some deals that make sense. These two look good.

Then just lastly, on parts and service, you mentioned service bay expansion. I was just wondering if you could put any numbers around the new bays and/or the ads and sort of where you are in cap ute and service bays?

On that slide, on slide 8, it shows we had 102 incremental stalls added in '06 and another 138 for 2007.

Okay.

I think that's like 4% overall. These are targeted in our luxury stores and our high line imports. We have excess capacity in many of our domestic stores.

And any idea where you are on capacity utilization?

I think overall, it's about I want to say 65%. I'm close, 62.

Okay, so there's a lot of room there still.

Yes.

Thank you very much.

Sure.

Thanks, John.

Our next question comes from Edward Yruma of J.P. Morgan.

This is Neha Manpuria in for Edward Yruma. I just have two quick questions. There was an increase in your import inventory. Can you give us in color on that, please?

Yes. It was an increase on the import inventory.

Is that correct, the question was the earnings import?

Yes.

Let me look at that slide. Yeah. We're up, you know, a few days from last year. And frankly last year, I think we felt we were light as we headed into the summer selling season. Most of the increase we're seeing here is in Honda and Toyota. But frankly, as we view where we're headed into the selling season, we're very comfortable with the levels we have. Don't feel we're really out of line.

Okay.

Very comfortable.

And what percentage of your stores are converted to DMS?

I don't know the percent. We're going to be finished in October. I'd have to say we're like 80% to 85% complete.

Okay. Thank you so much.

Our next question comes from Rich Kwas of Wachovia.

Good morning, guys.

Hey, Rich.

Hey, Dave, on the SG&A, you made a nice move year-over-year down. In the past, you talked about another 150 to 200 basis point opportunity over a period of time. How much closer are we to achieving that and how much room do you think you have from here on out?

Yeah. It's a great yes. I mean, we had a very solid result here and a lot of it was hard work in the compensation area, and a lot of it is just improving our pay plan structure. A lot of it is structure savings over time, and basically, I don't know that we're ever going to declare victory on cost cutting. We just continue to reduce wherever we can. You know, I don't have a firm target on it. We got initiatives attacking every cost element virtually every day. But where are we beyond this as a percent of gross? I think there's probably another 50 to 100 basis points to be frank over the next year and a half.

I might just throw in that the next key driver will really be the leverage that we get out of our D.M.S. system.

Yes, I mean for the first time, we're going to have a clear visibility to every cost element in real time. That's something that's a little difficult for us to do at present.

That's going to benefit '08 moreso than this year, right, because --

Yes, DMS, yes.

Okay. Then California on the interesting to see the used to new ratio pick up just a bit there year-over-year. Could you give us a little little more color on what was happening in the used and then the new market in terms of units during the quarter?

Well, the used car improvement we've seen is directly tide to full implementation of the Champion process that's installed across the board 100% of our stores. There's a lot of emphasis on holding on to some of those higher mileage trades; give us a better salable inventory on the used car side that's been effective for us in Q1. The new car volume, we were relatively pleased with our new car volume in California. In Q1, we were up 1.4%. So we had very stable results. We had margin compression as many others did in the state of California based on the market dynamics out there at the moment. Overall, we thought it was a solid quarter.

That was Jim Evans. And as he said, new was up 1.4, used was up actually up 5.3. That's what helped move the needle on that ratio.

Okay great. So both positive. Finally, in terms of import margins, we know that California there's been some pressure on the Toyota/Honda margins. Have you seen it spread outside of California?

No. You're right. We did see some margin expression on the imports in the quarter. But it was driven by California. If you take California out, our margins were actually flat.

Okay. Great. Thanks so much.

Your next question comes from Rick Nelson with Stephens.

Thank you. Good morning.

Hi, Rick.

Did you see any falling in luxury car sales at all during the quarter and any comments on April, I guess, the industry numbers that start coming this afternoon?

This is Jeff Dyke, Rick. Not at all. Our luxury car business for the first quarter was very good, anchored by BMW which really drove our business. April was a typical April.

On the SG&A front, when do you expect that we'll begin to see some of the benefits from the single D.M.S. system as well as the auto exchange rollout?

I think on the D.M.S., we're going to see that next year, Rick. I mean, we're just going to have it finished in October. Then we're going to need to, like, digest what we have and figure out how to ge after costs further. And auto exchange, we're using that to help manage our Champion store process. We're seeing the benefits of that in terms of better pricing and trading of our vehicles today.

Are any of the acquisition pricing deals that you have in the pipelines, are they within your targeted range?

They are. Given our strategy of portfolio enrichment, where we're targeting, these are high line luxury stores that we're looking at. They're going to be at the upper end of that range. What we found is we go in and work our processes in terms of costs and fixed ops growth, et cetera. They work very nicely down into the range.

Thank you. Congratulations.

Thank you.

Our next question comes from Matt Fassler with Goldman Sachs.

Thanks a lot, good morning.

Hey, Matt.

Can you give us any sense as to the way the quarter evolves? Some of your competitors and peers have reported and it sounded like January was pretty abominable and that the tone of business improved continuously. Kind of curious there you experienced something similar to that.

We experienced very similar to that. That's kind of a traditional thing in this business that drives me crazy. On the last two days of the month, you'll just a ton of volume and it turns into a nail biter. It's just the nature of the beast.

I know you had comments on April vis-a-vis and your vendors numbers are kind of hitting the tape as we speak. But any view on April versus plan?

It was an average April. The import business and the high line business seemed to be good. The domestic business was a little challenged. In comparison to last year, we had four Saturdays this April versus five Saturdays last year. We'll pick that up in June of this quarter so no big surprises.

Okay. If we look at your gross margin by business, and I think my numbers here are accurate, it looks like the grosses came down a little bit in most of your vehicle businesses but the mix sort of brought the aggregate margin up.

You're exactly right.

If you could talk a bit about the gross margin drivers in each piece that might have led to that pressure, particularly in new and used, if you would.

Yes. I think in new, I think we talked about it, Honda was a principal driver of the reduction in margin. In used, although we're down from last year, we're up from where we were in the fourth quarter. I think we're still getting our feet wet a little bit in terms of our Champion store process. I think the margins will stabilize a little better as we continue to get practiced and skilled in our processes. On parts and service, interestingly, our margins on customer pay and warranty are up slightly, 40 to 50 basis points. What's really driving that reduction is we had some higher sales and wholesale parts business, which is traditionally lower margin but still has profit. So that's pulling the mix down there, and you're right, our overall gross margin is up because fixed and used are a bigger proportion of our total.

Okay. In terms of your inventories in the aggregate as you benchmark your numbers against the field, your day's inventories still good. What was interesting is that a lot of your competitors seem to have down domestic inventories on a year to year basis. Yours were essentially flat. You might have been in better shape coming in a year ago, so u you know, on absolute terms you seem to be fine. Any sense as to why industry wide we might have seen domestics coming down and your numbers work kind of flat on a year to year basis.

We've always been an industry leader from inventory management both new and used. We are right in line with where we said from a domestic sand point.

Understood. Finally, as you think about investments, you know, you focused on building out your fixed capacity. You know, is there any change in terms of the magnitude investments that you are making, particularly with regard or once we've seen the environment toughen up a little bit? You did a great job with making your numbers. Clearly it's a little choppy. Are you reconsidering or reintensifying? Or are you going to be kind of level of with where you were in December?

We're solidly on track. I mean, a lot of these plans are longer term kind of planning things. We're investing in our best stores where we make money. And I commented that, you know, our gross profit was up 25%, 26% on the stalls that we've put in place and launched. That's just impressive. That business pays so quickly. So we're not backing off of that. I think our spending for the quarter was about $24 million. We spent $99 million last year. I would expect full-year spending to be around $99 million, $100 million, can't call it that close. This is our peak spending right now. Then I see it start to taper down in '08.

Thank you so much.

Your next question comes from Derrick Wenger of Jefferies & Co.

Yes. If you could tell me what depreciation and amortization and capital expenditures were for the first quarter and what the outlook is for the year for both.

Cap Ex was $24 million. Total depreciation was $6 million. And I'd expect roughly $25 million for the full year in depreciation amortization.

Depreciation and amortization?

Combined, yes.

That's very little amortization. And what was capital expenditure outlook for the year?

Close to $100 million.

Literally, amortization is not much at all?

That's correct. Historically have done a lot of sale leaseback.

Yes.

It shows up in terms of rent versus depreciation and amortization.

Great. Thank you.

[OPERATOR INSTRUCTIONS]

Your next question comes from Bryan Krug with Waddell and Reid.

Hi, guys. Can you tell me what the cash flow from operations was in the quarter?

I can tell you what EBITDA was. I can give you those pieces. EBITDA was $52 million for the quarter. And it's net income of $20 million, depreciation amortization of $6 million as I just mentioned. There's some other noncash charges in there of $2 million. Interest was $9 million and tax was $15 million. You add those up, you get 52.

Okay. One more question. It seems like your cash flow from operations has been a little more volatile the last five or six quarters. Can you talk about why that is and if we should expect that going forward?

I think it's been pretty flat. Our cash know statement gets a little confusing the way it gets reported because of some of the way floor plan financing is and also our sale and leaseback. There's some seasonality. I'll take a look at that, but my sense is that it's fairly EBITDA numbers that I've talked about, fairly stable.

I was referring to cash flow from operations.

That gets very complex. If you want to talk about that more, Greg Young and I can take you through how those numbers work. It's fairly complex on the working capital side.

That'd be great.

Okay.

Thanks.

Your next question comes from Mark Warnsman of Prudential.

Good morning.

Good morning, Mark.

Regarding your targeted 0.65 used to new sales for your stores. Do you anticipate any issues in having sufficient used car supply to meet that target? And how are you going to balance between maintaining your used margins and going after that target?

I don't anticipate that. This is Jeff Dyke, Mark. We don't anticipate that at all. We have traditionally in the past sold off a lot of our used vehicle inventory wholesale wise. You can see in the numbers that we're changing that strategy. We've got plenty of inventory. It's making sure we keep the right inventory and pricing it right. That's our Champion store process that we're going through right now. We're seeing certainly some of those benefits this year, but we're going to maximize those benefits in '08 and going forward.

How have you gone about changing your approach towards wholesale units? Do you have a more disciplined process in place? What are the criteria that you use to determine if you are going to keep it in house or send it off to auction?

It's changing the mind set at the store level. We've got processes in the whole training process that we use as we go out really on a daily basis into the stores and teach our associates how to handle that particular category.

Mark, as I looked at this think of a Mercedes guy who gets a Toyota trade in. I'm not going to sell this. It goes straight to wholesale. Guess what? You can sell that car. You have to know how to do it, to market it properly, but you can do it.

Mark, and our systems now are also -- we're expanding in our ability to move that Toyota from a different location from store a to store b. So we're maximizing those opportunities and it's just going to get better as we move forward.

Given your high mix of luxury and import brands, do you have more trouble moving around and selling a domestic car as opposed to sending it off to wholesale?

Not at all. As a matter of fact, the trade that come in at those particular locations are the best kind of trades.

We really improved in our luxury brands to 0.56 from 0.50. It was really impressive.

Okay, thank you.

Your next question comes from Mike Geoghegan with Bear Stearns.

Hi it's Mike Geoghegan. Thanks for taking my question.

Hi, Mike.

Your same-store growth has been pretty robust in all segments, especially compared to some competitors that have faltered in at least a couple of areas or a few areas, but I guess I'm sure you would acknowledge this is even into, you know, a challenging retail environment. So there's been a lot of talk about what might happen in the second half of the year when the industry finds a firmer footing. Your guidance, I think, was low double digits for vehicle sales and mid single digits for fixed ops. Can you give us an idea, is there any upside to those numbers, you know, if the industry does strengthen a little bit in the second half?

Yes. I mean just looking at our results for the first quarter, I thought was pretty strong. When you are looking at 5 to 6% growth in the higher margin segments like Used, Fixed Ops and F&I. Our new was at 2.1. I think there might be a little opportunity in new if the industry strengthens. I don't see that happening right now. I would be very pleased to keeping the 5% to 6% kind of growth. I think that's strong.

Fair enough. Let me say it one other way or ask it one other way. Was your guidance based on sort of a weaker first half and a stronger second half or was it just based on the current situation sort of in the early part of the year?

We didn't calendarize it that way. It's pretty much straight-line growth, constant growth.

Okay, so those -- okay.

You trying to lock up my guidance here, Mike?

No. Thank you very much.

All right.

Your final question is a follow-up from Rich Kwas from with Wachovia.

Guys, just on the CPOs -- what did you do this quarter versus the year ago period?

I believe CPO unit volume was flat and it was down slightly as a percent because we increased our other used vehicles, our values. I think it was about 34% and it may have been down a point or so.

Okay. Then on the disk ops with the number stores there, what kind of progress are you making on disposing of those?

I just checked on that this morning. We've got five stores that are look good to go. So we're making good progress and I'm going to really keep pushing on that because we've got capital tied up there and I want it.

You had 30 at the end of the year, right, in that bucket?

Maybe just less than that.

Great. Thanks so much.

Okay.

There are no further questions. I will now turn the call back over to Mr. Smith for closing remarks.

Great. Thank you, ladies and gentlemen. We appreciate your support. Thank you for being here today.

Thank you. This concludes today's Sonic Automotive first quarter earnings release conference call. You may now disconnect.