WRAPUP 1-U.S. car dealerships Sonic, Group 1 profitable on cuts

* Auto dealerships' profits better than analyst forecasts

* Reduced costs, inventory help Sonic, Group 1 results

* Shares of Sonic, Group 1 down after tripling in 2009

By Soyoung Kim and Kevin Krolicki

DETROIT, July 28 (Reuters) - Car dealership groups Sonic Automotive Inc (SAH.N) and Group 1 Automotive Inc (GPI.N) posted better-than-expected quarterly profits on cost cuts and said the U.S. auto market had stabilized after a steep downturn over the past year.

Sonic Automotive, the third-largest U.S. auto retailer operating 154 stores, said it had reduced structural costs by $85 million in the first half of 2009 and was on track to reduce costs by $135 million for the full year.

Group 1 Automotive, the No. 4 U.S. car dealership chain, also eked out a profit in the second quarter and provided a full-year profit guidance for the first time. It had previously withheld forecasts, citing market uncertainty.

Sonic's shares were down 4.3 percent on the New York Stock Exchange and Group 1 shares were down 5 percent. Both stocks have nearly tripled since the start of the year.

The companies echoed outlooks from automakers and dealer executives in recent weeks that there are early signs -- including customer traffic in showrooms -- that industrywide sales have stopped declining after hitting their lowest level since the early 1980s.

U.S. auto sales fell 18 percent to 13.2 million vehicles in 2008. The market has deteriorated further this year, with sales down about 35 percent through the first half of the year.

"The year-over-year rate of decline diminished each month of the quarter. In the month of June, approximately 15 percent of our dealerships actually increased their volume over last June," Sonic Chief Financial Officer Dave Cosper said on a conference call with analysts.

Most dealers in the U.S. are independent, with even the largest chains representing only a tiny fraction of auto sales in a fragmented market with about 20,000 new dealers.

Sonic Automotive reduced its new vehicle inventory by about $45 million in the second quarter to 62 days of supply at the end of June.

"We reduced essentially every cost element in our business," Cosper said. "We remain comfortable with that (cost-cutting) target for the year."

OUTLOOK STABILIZING

Houston-based Group 1, which operates 98 car dealerships, forecast 2009 earnings of $1.25 to $1.35 per share, on the assumption that U.S. auto sales would bottom out near 10 million vehicles this year. [ID:nN28507954]

"I think there are still plenty of fundamental issues with the economy," Group 1 Chief Executive Earl Hesterberg told Reuters in an interview.

"I think we're all happy that we think we've found the bottom and we see some positive things. We've still got ways to go before there's sustained economic recovery so we don't want to get carried away with short-term blips," he said.

The company cut recurring costs by $44.2 million in the quarter from a year earlier by eliminating jobs and through other measures. It is targeting full-year cost reductions of $120 million.

Net earnings fell 37 percent to $10 million, or 43 cents per share, from $16 million, or 71 cents per share, a year earlier.

Excluding one-time items, earnings from continuing operations were 44 cents per share. On that basis, analysts on average had forecast 33 cents, according to Reuters Estimates.

Revenue dropped 30 percent to $1.1 billion.

Charlotte, North Carolina-based Sonic Automotive posted net income of $26,000 during the quarter, compared with net income of $9.2 million, or 22 cents per share, a year ago. [ID:nN28433099]

It earned 7 cents per share, or $3.1 million, from continuing operations, compared with a profit of 40 cents per share, or $16.4 million, a year earlier. Excluding one-time items, it earned 19 cents per share, beating an average forecast of 15 cents per share compiled by Reuters Estimates.

Revenue dropped nearly 22 percent to $1.39 billion. (Reporting by Soyoung Kim and Kevin Krolicki; Editing by Phil Berlowitz)