Sonic Automotive, Inc. Class A Aktie

Good morning, and welcome to the Sonic Automotive First Quarter 2026 Earnings Conference Call. This conference call is being recorded today, Thursday, April 30, 2026. Presentation materials, which accompany management's discussion on the conference call can be accessed at the company's website at ir.sonicautomotive.com.

At this time, I would like to refer to the safe harbor statement under the Private Securities and Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information or expectations about the company's products or market 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 these statements made. These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission.

In addition, management may discuss certain non-GAAP financial measures as defined by the Securities 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, Chairman and Chief Executive Officer of Sonic Automotive. Mr. Smith, you may begin your conference.

Thank you very much, and good morning, everyone. Welcome to the Sonic Automotive first quarter 2026 earnings call. I'm David Smith, the company's Chairman and CEO. Joining me on today's call is our President, Mr. Jeff Dyke; our CFO, Mr. Heath Byrd; our EchoPark Chief Operating Officer, Mr. Tim Keen; and our Vice President of Investor Relations, Mr. Danny Wieland.

I would like to open the call by thanking our amazing teammates for continuing to deliver a world-class guest experience for our customers. It's because of our outstanding teammates that Sonic Automotive was just recognized as one of America's most trustworthy companies by Newsweek.

We believe our strong relationships with our teammates, guests and manufacturer lending partners are key to our future success. And as always, I would like to thank them all for their continued support and loyalty to the Sonic Automotive team.

Earlier this morning, Sonic Automotive reported first quarter financial results, including record first quarter total revenues of $3.7 billion, up 1% from the previous year and record first quarter total gross profit of $598.8 million, up 6% year-over-year.

First quarter reported GAAP EPS was $1.79 per share. Excluding the effect of certain items as detailed in our press release this morning, adjusted EPS for the first quarter was $1.62 per share, a 9% increase year-over-year.

Moving now to our first quarter franchised dealership segment results. We generated reported revenues of $3.1 billion, flat year-over-year and same-store revenues of $2.9 billion, down 4% year-over-year.

This same-store decrease was largely driven by a 10% decrease in new vehicle retail volume, offset partially by a 3% increase in used vehicle retail volume year-over-year.

It should be noted that first quarter new and used vehicle volume faced tough year-over-year comparisons due to the pull-forward consumer demand for vehicles in the prior year ahead of the U.S. auto import tariffs announced in March 2025.

Reported franchise total gross profit for the first quarter was up 5% and was flat year-over-year on a same-store basis. Our fixed operations gross profit and F&I gross profit set quarterly records, up 10% and 7% year-over-year, respectively, on a reported basis.

These 2 high-margin business lines continue to increase their share of our total gross profit pool, once again contributing over 75% of total gross profit for the first quarter, mitigating the potential headwinds to new vehicle volume and margin to our overall profitability while also leveraging our SG&A expenses more efficiently than incremental vehicle-related gross profit.

Same-store new vehicle GPU was $3,002 per unit, down 4% year-over-year. On a reported basis, new vehicle GPU was $3,144 per unit, up 2% year-over-year. On the used vehicle side of the franchise business, same-store used GPU decreased 4% year-over-year to $1,533 per unit, but increased 11% sequentially due to typical seasonality in the used car business.

Our F&I performance continues to be a strength with first quarter record reported franchise F&I GPU of $2,670 per unit, up 9% year-over-year and up 2% sequentially.

Turning now to EchoPark. Adjusted segment income was an all-time record $12.6 million, up 25% year-over-year. And adjusted EBITDA was an all-time record $18.6 million, up 18% year-over-year. For the first quarter, we reported EchoPark revenues of $581 million, up 4% year-over-year and all-time record gross profit of $68 million, up 6% year-over-year.

EchoPark segment retail unit sales volume for the quarter increased 3% year-over-year. And EchoPark segment total GPU was a first quarter record $3,502 per unit, up 3% per unit year-over-year and up 2% sequentially from the fourth quarter.

With momentum on our side, we believe we are well positioned to resume a disciplined cadence of EchoPark store openings beginning in late 2026, while also initiating targeted investment in brand marketing as a key component of our long-term growth strategy.

We expect to begin funding these brand marketing efforts this year, potentially increasing advertising expenses by $10 million to $20 million, with the majority of that investment occurring in the second half.

Turning now to our Powersports segment. We generated first quarter record revenues of $41 million, up 19% year-over-year. First quarter record gross profit of $10 million, up 19% year-over-year.

First quarter combined new and used retail volume was up 25% year-over-year. And we are beginning to see the benefits of our investment in modernizing the Powersports business and the future growth opportunities it may provide.

We also welcome our new team members from Space Coast Harley-Davidson, Treasure Coast Harley-Davidson, Falcons Fury, Harley-Davidson, Raging Bull Harley-Davidson, and San Diego Harley-Davidson. The acquisition of these 5 dealerships provides us coverage in key riding states of California, Florida, Georgia and North Carolina.

This acquisition further reaffirms our commitment to strategic growth within the Powersports segment and diversifies our geographic footprint and seasonality.

Finally, turning to our balance sheet. We ended the quarter with $770 million in available liquidity, including $381 million in combined cash and floor plan deposits on hand. Our focus on maintaining a strong balance sheet and liquidity position allows us to strategically deploy capital in a variety of ways to deliver value to our shareholders.

During the first quarter, we repurchased approximately 2.1 million shares of our common stock for approximately $136 million, representing a 6% decrease in outstanding share count from December 31, 2025.

In addition, I'm pleased to report today that our Board of Directors approved an additional $500 million share repurchase authorization and an 8% increase to the quarterly cash dividend to $0.41 per share payable on July 15, 2026, to all stockholders of record on June 15, 2026.

We continue to work closely with our manufacturer partners to understand the potential impact of tariffs on vehicle production, pricing and volume forecasts, vehicle affordability and consumer demand going forward.

The full year 2026 outlook and guidance on Page 13 of our investor presentation considers these uncertainties and represents our current expectations for 2026 financial results.

As always, our team remains focused on executing our strategy and adapting to ongoing changes in the automotive retail environment while making strategic decisions to maximize long-term returns.

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

[Operator Instructions] Our first question is from Jeff Lick with Stephens Inc.

I was curious if you can just talk a little bit about EchoPark. It appears that you're having some success there. Now you're talking about being optimistic about opening some new stores. I'm curious is there anything about this particular environment where, obviously, supply is pretty tight, it seems like used demand might be a little higher than new demand. Anything about this environment that plays into EchoPark's business model? And then what is it that gives you confidence to open new stores?

This is Jeff Dyke. On a same-store basis, new car prices were over $60,000 in the first quarter. That's an all-time high for the first quarter. Our total store is over $61,000. So with the appreciation or the increase in new car pricing, it's making affordability a big, big issue. And that is going to give -- put wind in the sale for pre-owned. So it gives us a lot of confidence.

We also are buying a lot more cars as a percentage of our overall business off the street, both on the franchise side and EchoPark. I believe we approached in the 40% range in the first quarter. And so that makes a big difference. The margins are better. We're selling more cars. We have access to inventory. We're growing. We're executing at a high level.

And so it gives us a lot of confidence as we move into Q2 to see the same kind of growth or even better for EchoPark on a year-over-year basis. And we're seeing it on the franchise side, too, maybe as a percentage growth, not quite to the extent, but in Q2, but the business is real strong. And it's being driven by just amazingly high new car pricing in the marketplace.

And this is Heath. Let me add one point. I think it's really important to understand the value of us getting the non-auction sourcing and the team has done a great job. Keep in mind, when we started, we were 90% auction and 10% other sources.

And now as Jeff mentioned, we're 40%. And those vehicles make $1,200, give or take, more in GPU than the auction vehicles. So that's been a big driver. The team has found ways to source vehicles in multiple ways rather than the auction. That's a big, big part of it.

And can you talk a little bit about -- I know you've somewhat integrated or tried to use your franchise dealerships as a strategic asset for EchoPark. And it's notable that you did a positive same-store sales and franchise for used as well. Can you maybe just talk about kind of the symbiotic relationship between those 2 and how you're using that to source for the entire enterprise?

Yes, it's Jeff. We've never done that before. We started here in the first quarter, really the later end of the first quarter. And so it's not that many cars yet, a few hundred overall, but it's going to grow. And we're buying nearly new cars out of the franchise side of the business, which obviously is helping the franchise -- helps the franchise side of the business, bringing those cars into EchoPark.

The margins are decent. Back-end margins are great. And we're selling the heck out of them, in particular, on the East Coast. They've been really, really strong. The Atlanta market has been really strong in this arena. And we'll continue to explore and do that with more brands.

We've been really focused on Toyota and Honda. But we'll do that with more brands as we get better at this. It's very new for us. And again, just a few hundred units would be included in those numbers that you're looking at for the quarter.

Our next question is from John Babcock with Barclays.

First question, I was wondering if you're able to quantify the impact of weather. And apologies if I missed, but whether it's an impact on overall dollars or if there's some way to estimate the impact on volumes? Any color there would be useful.

Yes. This is David Smith. And honestly, not being a smartass, but we really do not allow weather reports in our business and in our meetings and we just push through. And so we really don't focus on that at all.

Okay. Totally understand. Next question, I was wondering, are you guys seeing OEMs pull forward lease maturities? And if so is that benefiting EchoPark at this point?

100%, they're doing that, in particular around BEV. And we're seeing that on the East Coast or the West Coast and we're selling those vehicles. It's helping both the franchise side and somewhat at EchoPark. We're keeping most of those on the franchise side of the business.

And -- but definitely, the pull-aheads are helping in BMW, Mercedes. BMW has done a particular really good job with it. And we expect that to continue as we move forward, in particular around BEV because there's so many more BEV lease returns coming back here over the next -- between now and the end of the year as those leases mature.

So is it primarily happening with the luxury brands?

Yes.

Okay. Interesting. And then just last question. I was wondering if you might be able to provide some color on where you plan to open the EchoPark stores, whether it's in the same region as your existing stores or if you're planning to expand into other areas?

Our early expansion is primarily in Florida and Texas.

Our next question is from Chris Pierce with Needham & Company.

Just one on EchoPark. I know you're guiding to high single digit unit gains. I just was curious, I mean, you guys have performed better on front-end GPU, kind of talked that you performed better last year on vendor leverage, seeing healthy OpEx leverage.

But I guess I just want to understand what would be the real driver of unit growth? And again, I'm not trying to pooh-pooh high single digit unit growth in a flat market. I just want to -- and I'm also not trying to compare you to putting out 40% unit growth. But I'm just kind of curious what would be a real driver of the double digit unit gains.

It sounds like what you're doing. Yes, 40% is -- it certainly was an impressive number. Now look, at the end of the day, we're executing our playbook and our process. We sold well over 30 units per sales associate in the month of March, for example.

And we're executing, we think, at a high level. Those gains will continue through this year. That's what's given us the confidence to open more stores as we move to the end of the year and then on into '27.

And we're very comfortable with where we are, proud of our team for the growth that they have. And we look forward to that growth continuing.

And this is Heath. I'll add one of the things that would drive the unit growth is awareness. That is precisely why we're investing in the brand starting this year.

Yes. And Jeff noted before we mentioned Atlanta. We've had all-time record sales in Atlanta. And we think that a big part of that is because the market is much more aware of the EchoPark brand.

And one final point on that, this is Danny, is on the earlier point on non-auction sourcing improvements, we were up about 15% in terms of our sales in the first quarter year-over-year that were non-auction sourced. As Heath added, it's about a $1,200 better GPU on those vehicles. But it also gives us upside to grow that volume without being dependent or at risk of pricing on the wholesale auction front.

Our wholesale auction volume was actually down year-over-year in the first quarter. And some of that was strategic given the 7% wholesale auction price increases we saw in Q1, take advantage of it in the late fourth quarter.

But when pricing gets too high, we really push on this non-auction sourcing path. And that will only benefit from further investment in brand awareness and sourcing from customers as we go forward.

Can you actually -- could you please drill down on Atlanta a little bit? Like how should we think of Atlanta in terms of cohort, age of store versus Denver, marketing spend in Atlanta versus other regions and sort of just kind of give us some sort of like support themes as to what you're doing there that's driving the growth you talked about?

Yes. This is David. One of the things we did, you may have seen is that we got the naming rights for Atlanta Motor Speedway, which is now EchoPark Speedway. That's had a -- we've seen in the numbers that's been a major impact on customer awareness of the brand.

And we found since 2014 when we opened our first stores in Denver that people know about the EchoPark brand. And they searched for us. And once they experienced it and their friends experienced it, it's why we have the #1 guest experience in the industry as rated by reputation.com. That really pays off.

So we've been really focused on that. And as we said, we're going to start growing now. But we wanted to make sure we can maintain that world-class guest experience and the kind of volume that, like Jeff mentioned in March. Our teammates were able to deliver those -- we had some teammates that sold 50 or 60 cars in just the month of March and maintained that high-level guest experience. That's something that we're thinking of the future and how that's going to benefit the brand in the future.

Yes. The awareness in the Atlanta market has more than doubled since the sponsorship. And that really gave us the leg to say, okay, we need to really make some investments here from a marketing perspective, from a brand awareness. We just weren't ready till this year.

And we really spent a lot of time getting our house in order, buying more cars off the street, executing at a high level. You've seen we put quarters back to back to back to back together if you're following EchoPark closely and the growth. And that growth is going to accelerate.

And in particular, as we start opening stores, it will have the hockey stick acceleration. And we're very excited about that opportunity. But we're going to be very prudent and focused. We've done this before.

And this time, we're going to make sure that we get this absolutely right. And so we're really excited about getting some stores open towards the end of the year.

And I just wanted to highlight one more thing on this is that both Jeff and David mentioned, the fact that we have sales associates that are selling 30-plus vehicles when I would say probably 30-plus on the average per month per associate, that efficiency, the process that we have, that's one of the reasons that you see for this quarter, EchoPark's SG&A as a percent of gross was lower than 70%.

And our semi-fixed expense structure there, coupled with the processes that allow that kind of efficiency is just going to get better. And you'll see, as we've said from the beginning, that EchoPark has the ability to leverage that SG&A because of the way it's set up. It's very unique to have associates averaging that number of vehicles per month.

And Chris, one more point on the Atlanta market specifically. I guess, as maybe operational points supporting the brand awareness and the gains we've made there, our unit volume in the first quarter in Atlanta was up about 25% year-over-year and our total GPU was up $225 a car. So we're seeing more traffic. We're monetizing those incremental vehicles at a better rate.

Some of that non-auction sourcing mix we talked about obviously benefits us there. But we really think that's kind of an incremental proof point in the early stages on brand awareness and reaching consumers and letting them know who EchoPark is, what our guest experience is will only help continue to benefit those growing markets, but also our more mature markets in Houston and Dallas and Denver as we go forward.

Yes. And this is David. One last thing is that you'll see as we move forward and as we open new stores, new EchoPark stores that our cost basis in those stores is going to be less than we have spent historically, which is going to make it far easier to become profitable a lot faster in those locations.

Our next question is from Rajat Gupta with JPMorgan.

Pretty good execution. Congrats on that. I had a question on parts and service. I acknowledge that you don't like to talk about weather.

So irrespective, the growth is pretty strong despite some of tough warranty comps. I'm curious how we should think about growth there. I know you're sticking to like your framework. But maybe if you could unpack that for us a little bit, what's really helping that business? Any change in processes, hiring cadence? How should we just think about growth there for the rest of the year?

This is Jeff. I mean, look, we told you this 2 years ago, we were on a mission to hire technicians. We've lost 400 technicians, I think, since we started that mission. We continue to hire techs.

We're executing at a really high level on our playbooks. We have a value service program that we're very focused on to drive more customers into our service drive, which then allows us to upsell off of those value services that we brought into the service drive.

The used business is growing, so that helps internals. Just overall, we're executing at a very high level. And mid-single digits is a good number, maybe up a little bit above that. And it's across the board. It's not one market or another. It's not one brand or another. We've got some warranty challenges in comparison to last year.

I think we had -- with our Honda brand, we're up about $1 million in gross there. But we'll drive more CP. Obviously, we're not in control of warranty, but we'll drive more customer growth into those brands -- into that brand. And it's a bright future for fixed operations at Sonic Automotive. It's going to get better as we go on this year. It's going to get better and stronger into '27, '28 and towards the end of the decade.

There's a lot of business out there for us to get. Remember, customers buy new cars. But half of them don't go to a dealership, not just on anybody because we're -- the industry is priced high and processes were crazy and just reputation. I think we've cleaned all that up. Our service CSI scores are fantastic. And that's all playing into the results that we're seeing. And they're just going to get stronger as we move forward.

And one additional opportunity there is it's very ripe for AI. Our AI team is just going in now and starting to look at the processes at fixed. Obviously, a very high-margin part of our business. But we think we can be more efficient with the technology. So I think there's opportunity in that area as well.

We just broke $90 million in gross in a single month in the first quarter. That was an all-time record for us for a single month. And that's going to continue to get bigger. We've got short-term goals of being over $100 million a month in fixed operations gross. And we're hopeful to see a month this year do that. And then ongoing, we'll be above that.

So there's just huge growth there and great opportunity for us as we started to look at the business differently, more of a high-volume, high-traffic count business than we have in the past. And there's just too much opportunity and too many guests out there in our AOIs to take advantage of that. So that's what we're focused on. Danny?

And just a couple of other points there. As you might have seen in the release, we grew customer pay at a 5% rate on a same-store basis. But -- and warranty was at a 7% rate. So that was even an uptick in growth rate versus the fourth quarter. Warranty was only 2% up year-over-year in the fourth quarter.

So continuing to see benefits there as long as that warranty tailwind persists, but really focused on customer pay. And we got 40 basis points of margin expansion out of it. But on an all-in basis, customers pay is growing at 9%, warranty is up 15%, including the acquisitions.

So we've got some year-over-year upside in terms of the comparisons as we get into the back half and lap those JLR acquisitions from last year.

Right, right. That's very clear and helpful. I wanted to just ask a broader question around just pricing dynamics. I mean, maybe like a twofold question. One is you have this one big nationwide competitor of yours that is undergoing a pretty well telegraphed price cut. I'm curious if you're feeling it, are you seeing it? Have you reacted to it? Any thoughts on that would be helpful.

And then second question, Carvana yesterday talked about some risk in the second quarter from just narrowing wholesale retail spreads. I know that you have like much lower day supply and you're increasing consumer sourcing, too. But curious if that is something to keep in mind as far as your business goes?

As far as the pricing goes, we haven't felt that. And it's isolated to VINs and marketplaces and that hasn't tripped any wires over here at all. So we're not feeling that. Do you want to attack the Carvana?

On the spread?

Yes.

Yes. I mean, it's pretty normal seasonality. Obviously, prices went up in the first quarter. We were buying cars early in the first quarter when wholesale prices were down. As we go into the second quarter, we're seeing that shrink the gap between the 2. It's not going as rapid as last year, but it is closing. So that is real.

But we still expect nice growth with EchoPark in the second quarter. And we're going to continue to expand better growth than we had in the first quarter. So maybe the margin -- the margins are hanging in there better, both on the franchise side and EchoPark side in April better than they normally do from a pre-owned perspective, which is very good. That's great to see.

We'll see how supplies hold up as we move in. They always tighten. And we're always trying to shrink our day supply. So at this time of the year after the big first quarter and tax season. So we'll see how things go. But the pre-owned business should be nice and solid as we move throughout the rest of the year.

And again, to that our actual performance in the first quarter, our average selling price at EchoPark was down about 2% sequentially from the fourth quarter. But wholesale pricing was up 7% as we went through the first quarter, but our GPU expanded.

Our vehicle-related GPU only expanded about $200 sequentially. So we were seeing narrowing retail pricing on a mix basis anyway, increases in wholesale pricing, but still saw an expansion in GPU, again, because of the way we buy because of that non-auction sourcing mix.

And that should only give us more insulation against those movements as well as, as Tim said, recognizing the normal seasonality of used car pricing movements in January, February, March and then on the downswing in April, May, June, post tax refund season.

Got it. That's helpful. Maybe just last one on balance sheet. Very surprised by like the big buyback here in the first quarter. Curious like how should we think about leverage here?

You obviously increased the authorization. So maybe like another way to ask is like, is the ramp-up in buyback just a signal that you're not really worried about like the macro or the cycle here? And you just feel like with the growth in parts and services, the trend in EchoPark, there's just like more good things to come from an EBITDA perspective and you feel comfortable buying back this heavily right now. I was just a little surprised given some of the choppiness we hear about in the macro.

Yes. This is David. Yes, I mean, we obviously -- we would not have bought back the shares that we didn't feel confident in our business. And as always, we want our investors to know that we're going to be looking at all our different options of where we place our capital and look for the best return.

So -- but I think the key to what you were saying there and what you're asking is what are we going to do going forward? And we're going to look at various opportunities like the Powersports acquisition that we just made. That was a great opportunity and offered great ROI opportunity. And we're going to continue with that, whether it's with whatever we choose, whether it's share repurchases or debt reduction or acquisitions.

It just depends on what we see in the market. Heath?

Yes. Yes, I'll just say, we feel like we have a very strong balance sheet at a little over 2 turns for our leverage ratio. And that gives us a lot of liquidity. That gives us the ability to actually invest in multiple areas.

As you've just seen, we were able to purchase 5 JLR stores last year, 5 Powersports dealerships this year, at the same time, buy back 2 million shares, increase the dividend by 8%, investing in our business as it relates to AI, buying real estate, enhancing the facilities.

And finally, we're still in great shape to expand EchoPark. And so I think the balance sheet is allowing us to do that. We're completely comfortable where we are in the leverage ratio. And we've got it all cooked in and understand the impact. And we're very comfortable that we've got a lot of dry powder to invest in all of these areas.

And Rajat, I think if you look at the quarters, the last 6 or 7 quarters that we've strung together, we're showing the execution, the discipline in this company like we've never shown before. And so that gives us a real high level of confidence.

It doesn't matter if there's COVID or tariffs or weather or whatever else is going to come. Godzilla is going to come out of whatever and blow up our cars, we're overcoming all of that. And I think that's just a big testament to our team.

The tenure that we have on this team is amazing. We had a Board meeting yesterday. And we were going through our tenure in this company. It's just incredible. And yes, very, very confident. So we look forward to the great remainder of the year and a very bright future for Sonic.

Our next question is from Bret Jordan with Jefferies.

This is Patrick Buckley on for Bret. As you think about the longer-term outlook on franchise new GPUs, how are you thinking about the new floor there? Some peers have recently suggested landing spot towards the upper end of their previous targets. Have your thoughts changed at all?

I mean, we didn't change guidance there. We're seeing a little bit of shrinkage on front-end margin in April for new. It's going the other way for pre-owned.

I think we're fine in the range that we gave you guys for the year. Mix moves around a little bit. If you're selling more domestic than normal or more Honda than normal, we get a little drop in our front-end margin.

But our F&I numbers are so good at our franchise stores, our F&I numbers in the first quarter were up $230 a vehicle, which is just fantastic. And we expect that to continue to grow as we move throughout the year.

So the total all-in margin, I think we're going to be just fine. And it may move around a little bit due to mix. Mercedes sells more or less or BMW more or less, then Honda comes in or Ford comes in, the margins are a little different. But our F&I numbers are so strong that it balances it all out. And I think we'll be fine with our guidance that we gave you for 2026.

Got it. And then on BMW, we've heard some talks of delayed new product timing there. Has there been any notable disruptions or impact to that delayed product change this year?

No. No. They've been doing a fantastic job. They communicate well. And they've done an amazing job managing through this as all of our manufacturer partners have. And there've been no issues. I mean, we need to watch affordability and entry-level models into some of the luxury brands. That's an important topic to study and watch.

But you start getting past -- there's 2 quarters in a row now we're past $60,000 mark. We'll see. I don't see that changing in the second quarter. Third quarter, they're going to pass on the tariff expenses to the consumer. Prices are going up. It helps the used car business. We'll see how much elasticity is in the new car pricing.

I mean, something is going to have to happen if volume really slows off because the supply start growing. And then you will have a margin compression issue. I don't see that happening this quarter or next, maybe a little bit due to change in mix for us. But overall, I think it will be nice and steady as she goes.

[Operator Instructions] Our next question is from Alex Perry with Bank of America.

Congrats on the execution. I just wanted to ask about if you've seen sort of any impact from the war, any sort of change in new/used vehicle sales trends as we moved into April? And could you maybe help us on like the cadence of the monthly comps in the quarter on the new side?

I would say, Alex, this is David, that it's been really pleasantly surprising that the resilience of the consumer and that they've just continued our demand and you've seen in our numbers they're continuing to do business with us. And despite the uncertainty, I think that it's really been fantastic to see.

And I think that hopefully soon, this major conflict will be over. And I think we'll go into the summer months with some great results. But J.D.?

Yes. I mean, if anything, BEV units on a -- from a pre-owned perspective, we're selling a lot more of those. The pull-aheads are helping. And we're getting -- that's a big win in our sales right now because otherwise, we'd have some overhang, I think, with BEV.

And in particular, I think the luxury stores are doing a great job with that, BMW, Mercedes. So they're doing a really good job. But other than that, no. I mean, the business has been good cadence-wise. January was amazing. I mean it was just an unreal January.

If you want to talk about weather, maybe that slowed us down a little bit at the end of January, but just a fantastic January and a really good February. We started comping against the tariff pull-aheads in March. So -- and you did that all of March really in the first 2 weeks or so of April, 10 days of April. And then the comps will get a lot easier as we move into May and June.

So we'll see some flip around in our year-over-year numbers. We'll start sort of heading into the positive direction. And I'm just -- just throw out the comparison of March and the first 2 weeks of April, it's not a fair comparison. Compared against '24 and '23 and we look fantastic on a year-over-year basis. And so that's how that looks and that's kind of behind us now.

You're going to get a little bump when we get to the September time frame and we bounced against the BEV kind of pull-ahead from that time frame. But it ought to be smooth sailing other than that for the rest of the year.

That's really helpful context. And then I guess my next question, you mentioned in the deck consolidation opportunity in Powersports. Is that a place where you'll continue to add doors there?

What are you seeing there that gets you excited? Do you expect it to be sort of on the Harley side in the motorcycle space or more sort of traditional Powersports? We'd love to hear just sort of how you're thinking about that segment.

Yes. This is David. We've been really, really pleased. A big shout out to our Powersports team. They've just done an outstanding job. And as I mentioned, modernizing the Powersports industry, at least the ones that we have, we see some great opportunities and the prices, the acquisition opportunities are coming at us. It's very interesting.

We like our diversified portfolio. So we're not going to be concentrated solely on Harley-Davidson. But this recent acquisition was just really just outstanding and the fantastic locations or as I mentioned, you have a lot of sunny days in those markets to offset some of our -- the snowy weather in our big South Dakota Sturgis stores.

But we do see fantastic opportunities. You look at the growth that's generated in motorcycle sales, new and used is really -- it's crazy. It's like we're making the same amount of profit on selling an item that's maybe 1/3 of the price of a vehicle. And so there's some great opportunities there. J.D.?

Yes. I would tell you, just to give you a little more detail on what David was talking about. I mean, our new GPU for the first quarter on the franchise was $3,144 and our GPU for Powersports was $2,891, damn near the same number. Our used GPU, which we've really grown the heck out of our used business on Powersports, that's something that industry lacks was $1,938 a copy versus $1,539 a copy.

We're making more gross selling used than we are selling used on the franchise side. So very exciting opportunity for us to grow that part of the business.

And we're opportunistically buying, just being very careful and cautious. And as we told you from day 1, growing the business and putting in our playbooks, our technology, taking care of our guests, taking care of our teammates. And we just get better and stronger, all-time record quarter.

We see that backing up to the next all-time record quarter and the next one. It's a fun business with great margin percentage. And our team loves going in and buying them and who we are acquiring love it.

So we're having a great time. And as David said, we've got a fantastic leadership team running that business, totally separate from EchoPark and our franchise business. And we'll see what happens in the coming quarters. There's a lot of opportunity in this segment.

That's really helpful. Could I ask one follow-up on that? The used grosses and the differential versus the vehicle side is pretty interesting. Why do you think the grosses are so high in the Powersports side on a relatively lower ASP? Is it just the fact of the market? Yes.

Think about -- it is. That's part of it. But think about customers don't know that they -- what to do with that product. When they buy a new Powersports, they buy something, a Polaris or whatever. They've always taken their old one and put a sign on in the front yard that said for sale.

They don't know that we want to buy that from them. And so we're giving them a great deal of buying that and they're expensive. If you buy a brand-new Ford or Polaris now is $55,000. We can trade for them and sell them for in the upper teens or lower 20s, make great margin like you see and provide the consumer with something they've never gotten in this industry.

So there's a huge -- I mean, it's just industry just did not sell pre-owned. And we're growing pre-owned at 40% and 50% clips a quarter and that's going to continue into the future. They just didn't focus on it. And that's something that is core to our success at Sonic Automotive. And we're bringing that to this industry and it's making a big difference.

And that's one of the things that validated our entry into this is over the last 3 quarters, we've grown 35%, 40% in this quarter, 56% used vehicle volume year-over-year. Even in an off quarter like the first quarter seasonally, new volume was up 16%, both new and used gross per unit grew 7% or 8%.

So we're growing not just the base, but the efficiency of those products just as we did into prime selling season here starting in April, May.

They also had very, very little discipline around inventory management. And as you guys know, that's something that we're known for in our day supply and how we manage inventory. We don't get surprises there. If we do, they're fixed in 2 weeks. And there was none. There's just absolutely none of that in the Powersports business.

So we've cleaned all that up from a parts, from a used, from a new perspective. And we're turning inventory like we should. And that's going to expand margin when you do that.

There are no further questions at this time. I would like to hand the floor back over to David Smith for any closing comments.

Great. Thank you very much. Thank you, everyone. We'll talk to you next quarter.

This concludes today's conference. You may disconnect your lines at this time. Thank you again for your participation.

Good morning, and welcome to the Sonic Automotive Fourth Quarter 2025 Earnings Conference Call. This conference call is being recorded today, Wednesday, February 18, 2026. Presentation materials, which accompany management's discussion on the conference call can be accessed at the company's website at ir.sonicautomotive.com. At this time, I would like to refer to the safe harbor statement under the Private Securities and Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information or expectations about the company's products or market 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. 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, Chairman and Chief Executive Officer of Sonic Automotive. Mr. Smith, you may begin your conference.

Thank you very much, and good morning, everyone. Welcome to the Sonic Automotive Fourth Quarter 2025 Earnings Call. Again, I'm David Smith, the company's Chairman and CEO. Joining me on today's call is our President, Jeff Dyke; our CFO, Heath Byrd; our EchoPark Chief Operating Officer, Tim Keen; and our VP of Investor Relations, Danny Wieland. I would like to open the call by thanking our amazing teammates for continuing to deliver a world-class guest experience for our customers. 2025 marked the third consecutive year of delivering all-time record customer satisfaction scores for our franchise dealership guests. And EchoPark once again retained the highest guest satisfaction rating among pre-owned vehicle retailers. We believe our strong relationships with our teammates, guests and manufacturer and lending partners are key to our future success. And as always, I would like to thank them all for their continued support and loyalty to the Sonic Automotive team.

Turning now to our fourth quarter results. Reported GAAP EPS was $1.36 per share. Excluding the effect of certain items as detailed in our press release this morning, adjusted EPS for the fourth quarter was $1.52 per share, a 1% increase year-over-year. Consolidated total revenues were $3.9 billion, down 1% year-over-year. Fourth quarter record consolidated gross profit grew 4% and consolidated adjusted EBITDA was flat compared to the prior year fourth quarter. For the full year, reported GAAP EPS was $3.42 per share, and adjusted EPS was $6.60 per share, an 18% increase from 2024. Consolidated total revenues were an all-time annual record of $15.2 billion, up 7% year-over-year, and consolidated total gross profit was an all-time annual record of $2.4 billion, up 9% year-over-year. For 2025, consolidated adjusted EBITDA grew 10% to $615 million.

Moving now to our fourth quarter franchise dealership segment results. We generated reported revenues of $3.4 billion, flat year-over-year and down 5% on a same-store basis, driven by an 11% decrease in same-store new vehicle retail volume, offset partially by a 5% increase in the same-store used vehicle retail volume year-over-year. Fourth quarter new vehicle volume faced headwinds from pull-forward consumer demand for electric vehicles ahead of the expiration of the federal tax credit in the third quarter, combined with strong luxury demand in the prior year fourth quarter. Reported franchise total gross profit was a fourth quarter record, up 4% and declined 2% on a same-store basis. Our fixed operations gross profit was a fourth quarter record, and F&I gross profit set an all-time quarterly record, up 8% and 6% year-over-year, respectively, on a reported basis. These 2 high-margin business lines continue to increase their share of our total gross profit pool, once again contributing over 75% of total gross profit for the fourth quarter, mitigating the tariff headwinds on new vehicle volume and margin to our overall profitability, while also leveraging our SG&A expenses more efficiently than incremental vehicle-related gross profit.

Same-store new vehicle GPU was $3,033 per unit, down 7% year-over-year, but up 6% sequentially due to a higher luxury mix in the fourth quarter. On a reported basis, new vehicle GPU was $3,209 per unit, down 1% year-over-year and up $208 or 7% sequentially from the third quarter. On the used vehicle side of the franchise business, same-store used GPU decreased 2% year-over-year and decreased 10% sequentially from the third quarter to $1,379 per unit. Our F&I performance continues to be a strength with fourth quarter record franchised F&I GPU of $2,624 per unit, up 8% year-over-year and up 1% sequentially.

Turning now to EchoPark. Adjusted segment income was a fourth quarter record $3.6 million, up 300% year-over-year, and adjusted EBITDA was a fourth quarter record $8.8 million, up 110% year-over-year. For the fourth quarter, we reported EchoPark revenues of $481 million, down 5% year-over-year and fourth quarter record gross profit of $54 million, up 9% year-over-year. EchoPark segment retail unit sales volume for the quarter decreased 6% year-over-year, and EchoPark segment total GPU was a fourth quarter record $3,420 per unit, up 15% per unit year-over-year and up 2% sequentially from the third quarter. For the full year, EchoPark segment adjusted EBITDA was an all-time record $49.2 million, up 78% year-over-year. Going forward, we remain focused on increasing our mix of non-auction sourced inventory to benefit consumer affordability and retail sales volume and GPU. When combined with the strategic adjustments we have made to our EchoPark business model, we believe we are well positioned to resume a disciplined store opening cadence for EchoPark beginning in late 2026, assuming used vehicle market conditions continue to improve. In the long term, we intend to expand our EchoPark platform to reach 90% of U.S. car buyers, selling over 1 million vehicles annually while continuing to provide a superior guest experience. We believe investment in brand marketing will be key to our long-term EchoPark growth plan, and we expect to begin to invest in this effort during 2026, potentially increasing advertising expense by $10 million to $20 million this year.

Turning now to our Powersports segment. We generated fourth quarter record revenues of $36 million, up 19% year-over-year and fourth quarter record gross profit of $9 million, up 25% year-over-year. Fourth quarter combined new and used retail volume was up 18% year-over-year, and we are beginning to see the benefits of our investment in modernizing the powersports business and the future growth opportunities it may provide.

Finally, turning to our balance sheet. We ended the quarter with $702 million in available liquidity, including $306 million in combined cash and floor plan deposits on hand. Our focus on maintaining a strong balance sheet and liquidity position allows us to strategically deploy capital in a variety of ways to deliver value to our shareholders. During the fourth quarter, we repurchased approximately 600,000 shares of our common stock for approximately $38 million, bringing the full year share repurchase to 1.3 million shares for approximately $82 million. In addition, I'm pleased to report today that our Board of Directors approved a quarterly cash dividend of $0.38 per share payable on April 15, 2026, to all stockholders of record on March 13, 2026. We continue to work closely with our manufacturer partners to understand the potential impact of tariffs on vehicle production, pricing and volume forecast, vehicle affordability and consumer demand going forward. The full year 2026 outlook and guidance on Page 13 of our investor presentation considers these uncertainties and represents our current expectations for 2026 financial results. As always, our team remains focused on executing our strategy and adapting to ongoing changes in the automotive retail environment while making strategic decisions to maximize long-term returns. This concludes our opening remarks, and we look forward to answering any questions you may have. Thank you very much.

[Operator Instructions] Our first question is from Jeff Lick with Stephens Inc.

Congrats on a standout quarter. It's pretty impressive results relative to the others in Q4. I was wondering if you could talk a little bit about EchoPark. I was just curious, if you think about the -- the used car options that are out there right now, and there's obviously big players like Carvana, Karma, Era. I'm just wondering, as you're starting to understand the EchoPark business better, where do you guys see how you fit into the used car ecosystem in terms of when someone is looking to buy a new car, a used car, where do you guys view as like where you really kind of over-index and solve a problem for a customer. Where do you fit in the used car ecosystem?

This is Jeff. We've always kind of looked at EchoPark as the Costco sort of of the preowned world. There are 35 million to 40 million pre-owned cars sold every year in this country. And if you look at what Carvana is doing 500,000, 600,000, you look at CarMax in the 800,000, 900,000 range, there's a lot of room for us. And prior to COVID, we said we'd be at 90% coverage of the country and sell over 1 million vehicles. We feel very comfortable over the last 3 or 4 years. We worked very hard on the model. We can slowly and accurately build stores. Like we said, we're going to open 1 or 2 in the fourth quarter of this year. We'll open more in '27, and we will methodically grow the EchoPark business. But we're the low-cost provider in this arena. And when you look at how we price our vehicles and you compare to those 2 competitors, we're anywhere from $3,000 to $6,000 cheaper than those guys. And it gives us the ability to sell a lot of vehicles on a per rooftop basis versus our competitive set. And we're seeing that. We see it in the 17 stores that we have opened now. And we believe that being that low-cost provider and really taking care of our guests like we do with our great guest satisfaction scores, which are industry-leading, that combination is just going to be really hard to beat as we slowly begin to grow this brand.

And Jeff, this is Heath. I'll add one point is exactly what Jeff was alluding to is that that objectively, we are the lowest cost provider. You can look at the data and the facts are there. objectively, we have the best customer experience. We've won for the last 16 quarters with reputation.com comparing to Carvana, CarMax and others. And now that we are starting the expansion again in a disciplined way where we still have profitability going forward. You combine that with our brand initiative, which we mentioned earlier in the press release and in the statements. Now people know. I mean, I think the biggest thing is that we get our name out there, and you've got the 2 main things that people are looking for, and that's just going to give additional tailwinds to EchoPark, especially as the inventory is returning, it's going to be a really nice situation for growth for EchoPark.

Yes. Just a quick follow-up. You talked about non-auction sourcing. I'm just curious, you had a little bit of a hiccup with the commercial rental car fleet returns and that gumming up sourcing a little bit. Just any updates on where you're sourcing non-auction related and then how you see the sourcing unit availability for your business model in 2026?

Yes. We are. We're incentivizing our team to buy vehicles all over the country. And we're finally beginning to leverage our new car franchise dealerships for inventory. We've always kind of kept that separate. And we have found a way, we believe, to leverage the heck out of that as lease returns begin to come back as we can trade for more cars out of those 111 franchise stores. And we'll begin to see the beginnings of all this and the inventory sort of feeding into EchoPark will start in March and April time frame of this year. And so we're very excited about that and reducing our dependence on the auction lanes. And that's happening, but it's methodically happening with a very strategic plan around that. And buying more cars off the street certainly is happening and engaging our experience guides in that kind of model is going to make a big difference for EchoPark as we go forward. It's a very important part of our growth plan.

Our next question is from Rajat Gupta with JPMorgan.

I just wanted to quickly follow up on the EchoPark commentary. Just given the store openings later this year, the increase in advertising, it looks like the year-over-year growth should accelerate in the back half. And are you setting up for 2027 to be an even stronger year from a growth rate perspective than the high single digits this year? Is that the right takeaway from these investments? Okay.

100%.

Got it. Okay. That's helpful. And maybe I want to pivot to like parts and services. Understandably, warranty comps were tough here in the fourth quarter. Could you give us an update on where you ended up with respect to same-store technician growth? And any targets for 2026 that you're going after there? I would be curious.

I think since March of '24, where we started our technician focus, we're now plus 400 technicians from that original date that we started talking about this. And that's been a big part of our success since then from a fixed operations perspective. We're all in Houston right now at our annual meeting, and our whole annual meeting today is focused on fixed operations and our ability to grow this business significantly. We think we've got $100 million a month in fixed operations gross that we can do. That's $1.2 billion. We did a little over $1 billion in '25. So we're really excited about the opportunity here. There's just too many customers that -- and for the industry that don't come back to a new car store to have their vehicle serviced. And it's like 50-50. And we think we can attract a lot of customers. We've got the time to sell. We've got the base. We've got the technicians, and we're going to take advantage of that as we move here forward here over the next year or 2.

Understood. And then just on your balance sheet leverage, just a question on capital allocation. It looks like the way you define it, it's 2.1 in terms of net debt to EBITDA based on the add-backs are allowed from rating agencies. I'm curious how much could you stretch? And would you plan to stretch that in '26 or in the medium term to maybe deploy more capital into either more M&A or buybacks?

Yes. If you look at that rate, I think we are the first or #1 or #2 in leverage ratio, and we're comfortable with that. We want to have a very strong balance sheet. We would be comfortable going to a 3.5, but there's we can actually execute our plans for next year and still maintain that low leverage ratio. If a nice acquisition shows up that requires some debt funding, then we could do that as well. We have plenty of room. But we've got enough dry powder to implement our plan for '26. You can see we had a big acquisition in 2025. That was the majority of our capital spend. You can see that from a returning capital to shareholders, dividend, that's been increased by $200 plus over the last several years. And so that's always something we want to stay within 20% to 25% payout on the dividend. That's our target. And share repurchase, that's one of the things that when we see opportunity, when we have a price that pencils out and it's the best return, we're going to continue that as well. And then the last piece is returning -- basically investing back in the business. And as we start growing EchoPark, you'll see that bucket fill up a little bit more as we build new EchoPark stores. So very comfortable with our balance sheet, all of our covenants and got the dry powder we need to execute for '26 and forward into '27.

And Rajat, this is David. I think just on M&A, just to note that these opportunities in our industry come along and they can come along quickly and just -- and we're excited so far about our big acquisition of the JLR stores last year. It's been a great acquisition. And that one came along pretty darn quickly, and it was a great one. So hopefully, we'll see some more like that and some great opportunities to grow the business and grow earnings.

Our next question is from Bret Jordan with Jefferies.

Slide 13, I guess, down in '26 roughly by the amount of your marketing advertising expense. Do you see that inflecting positively in '27? Or is there sort of ongoing rollout expense as you start rebuilding the business?

You broke up right there at the beginning. Is that on EchoPark?

Yes, Slide 13.

Yes. I was wondering, do you see that in '27 accelerating as you're sort of passing this initial marketing expense?

Yes. That's exactly how you should look at it. We're going to have some initial spend here while we get prepared for launch. That's really not going to happen until the fourth quarter as we begin to open a few stores. And then we'll have a cadence of stores that we can open next year and a different level of spend that we'll talk about as we begin to grow the brand across the country and focus on driving our $1 million-plus sales and our 90% coverage. And as we go through the quarters, we'll continue to update you guys on where we are in the progress that we're making. We gave you a $10 million to $20 million range, kind of we can narrow that gap a little bit as we get towards the fourth quarter for you, but that's exactly how you should look at it.

And just to add to that, Bret, this is Danny. We guided to high single-digit volume growth for EchoPark in '26. But as Jeff said earlier, that really doesn't reflect any benefits from this brand investment. So you can look at that as accelerating in '27 and beyond as we get the benefits of the brand investment and increase our store base. So that will help drive both the volume-based growth that we're projecting as well as some EBITDA leverage in '27 and beyond.

Okay. Great. And then a question on Q4, some of your peers talked about luxury consumers acting a little softer than normal for that seasonal period. And you guys didn't mention that. Do you see any behavioral change, whether it's people pushing back on these high ASPs in luxury or in the parts and service? Or is there any move to decline recommended services? Anything at the consumer we should read through?

Yes. That's what I was saying earlier. I'm concerned about the tariffs and from a pricing perspective, what's going to happen as we get into the early summer. If you'd have sat been with us and you were looking at October and November and the cadence, you'd gone, oh, cow, you guys better have a big December. This is going to be a rough fourth quarter. And then December came along, and it was just -- it was one of those great Sonic Decembers that we always count on, and it was just amazing. We sold a lot of everything, in particular in our luxury segment. And surprisingly, 62-plus thousand average selling price as that mix change to luxury, and we were prepared. We've been doing this for so long together as a team. We had the right inventory mix our manufacturer partners stepped up. And so we had a great quarter, we think was a great quarter and an amazing December. And then we came in and had a really good January. When we report, we can talk about it on the first quarter, but the snowstorm slowed things down a little bit, but it was still a great January even with the damn snowstorm.

We've not had that, right?

No, had we not had that, wow. And so we'll see. I am cautioning and concerned about what is going to happen, how far, how much elasticity can we deal with or can the consumer deal with from a new car perspective. And something is going to have to give here. The prices are getting -- are just getting too high. And now didn't show up in January. It's really not showing up in February. We'll see. I think a lot of people are counting on big tax returns. We'll learn a lot this summer. Great news is the service business is great and has lots of upside. The F&I business is great. And then the used car business should just be fantastic as that gap widens. You really want your average retail selling price for a used car to be 1/2 that of a new car, and we're beginning to see that gap come back. And during COVID, it got all the way to 80%, 90%, sometimes 100% depending on the brand. So a lot of great opportunities as we move into the year, but a big caution on exactly what's going to happen from a pricing perspective on new.

Do you have visibility as to what the OEs are going to pass through in higher price -- sort of on a same SKU basis? If the BMW X Series was 50, is it now 55 with the pass-through?

I don't -- I mean I'm from based on what I've been seeing, we're seeing 3% to 5% increases and that can be a 1% to 2% increase on a normalized basis, right? So they're definitely passing on. But they're also doing a great job of cutting spending where they don't need to spend and cutting programs that were nice to have. And so -- and I've spent a lot of time on a bunch of different dealer boards, and that's a great topic of conversation with the manufacturer partners. So they are making some really good decisions on spend so that they don't have to impact pricing and they don't have to impact margin. But the tariffs are too high on some of these brands, and you're going to -- they're going to pass pricing on. It's already happening. They're going to cut margin. It's already happening. And they paid for it all in '25, and that's a big point here. They really paid for it, and you can see it in their reported numbers and the amount of money that some of these manufacturers were losing in the billions of dollars. that's just not going to -- that's unaffordable. That's not going to continue to happen and something is going to change as we move into this year, and we'll see. It's -- we've got to really pay close attention. I was calling this out, if you all remember, in the third and fourth quarter, watch these numbers. And I'm telling you, watch these numbers, watch new car pricing as we move forward, in particular, on luxury. -- luxury buyer will push back at some point.

Our next question is from Chris Pierce with Needham & Company.

Just kind of looking at fixed ops. I was just wondering if maybe you could speak to possibly like the subscription nature of this business? Or -- I mean, I know I guess you're trying to bring people back into the funnel. But when people buy cars, I know there's a prebuy option for 3 years of service, that type of thing. Is that something you're seeing and that gives you confidence in growing this business? Or is that so small right now that it's not really a factor?

No. I mean I think that we have an opportunity to sell more products like that for sure to bring the customer back. But the industry as a whole is doing something wrong if 10 customers come in and buy cars and 5 of them don't come back to a dealership to have their vehicle service. And some manufacturers high as 70%. This is something as an industry we must address. Why would you not come back to a dealership where you have ASE-certified technicians, you've got the best equipment, the best parts, the best service you can get and they're going to mom-and-pop store, half of them are going to a mom-and-pop store down the street. that would indicate that there's a pricing opportunity from my perspective. And there's an opportunity. We fill the bucket up with technicians and the amount of hours that are available. Now we need to put that to work for us. And that's where we are at this point in time of our journey is really sharpening our pencils, making sure that we've got the right pricing out there and that we're bringing customers and the marketing, and we're bringing customers into our service drives. There's more out there to get -- a lot more out there to get a lot of upside, and we're just scratching the surface from my perspective.

We've got to get the perception versus reality where the customer knows that our prices are actually competitive or better than the independent down the street.

And I was going to say literally, the marketing is a new concept from the Sonic perspective. We have a focus to sales force. We have a focused campaign now, which we used to never have that on the service side. So that, coupled with having products, warranty products that drive the consumer back to the franchise dealer, those 2 things are going to help our market share.

And one other point there. We guided to mid-single-digit percent growth in fixed ops on a same-store basis. Fourth quarter, our warranty was only up 2% year-over-year. That had been growing 20%, 30%, 40% year-over-year for the last several quarters. So we're finally seeing kind of a normalized level there. But we think that these opportunities on the customer pay side are what's going to drive sustained mid-single-digit growth above that long-term 2%, 3% average, but continued opportunity with the additional technicians, the marketing efforts, the efficiency of selling the hours and loading the base. There's some real upside there in that piece of the business. That just crested $1 billion in gross for the first time this year. So it's the larger numbers with a mid-single-digit percentage is significant opportunity from a gross profit growth perspective.

And just on that, is it something -- I know you guys have to take the ball and run with it, but it's something the OEMs can help with as well? I know the cars are getting smarter. You don't just see a check engine light, you can actually push a message what needs to happen, maybe the price. Like do the OEMs help on this front as well with the cars getting smarter? Or is it 100% you guys have to kind of take this and execute here?

Yes, 100%. You sit down and talk with many of our OEM partners. They see the exact same issue, and it's at the top of discussion with all of them is how do we drive more customers that we're selling cars to now back into our service drive and what products do we need to use in order to make that happen. I had this exact conversation with the leadership of Toyota and Lexus not too long ago. It is a big, big focus point. And we need to drive more customers that we're selling cars to back into our service drive. And we can do it. The industry needs to do it, but we're certainly going to make that happen. at Sonic Automotive. And it's awareness, as David was saying earlier, it's making sure that our door rates and our pricing are in the right areas in terms of being competitive with the mom-and-pops up and down the street. That data is readily available for us all now, and I think you'll see us make a big impact as we move forward.

And I think it sounds like you're also thinking of the technology side of it where the customers will have apps for their BMW and Mercedes, Porsche, et cetera. And the app will tell them, okay, come on in, and that's going to drive a lot of business for us.

Okay. So that's something that's not quite happening now, but can get better. Okay. Got it. 100%. Okay. And then just one on EchoPark. Do you feel like you need like a buy button on EchoPark given what digitally only like what Carvana is seeing as far as growth in units? Or is it just about convey the value to customers, convey the price and then versus peers. And from there, that should get the customers in the store, and that has consistently got the customers in the store in your older locations?

Part of that $10 million to $20 million spend is you will see a launch of the EchoPark app, which we're incredibly excited about. And we're building and investing in a digital retail solution that we think will be industry-leading once complete. We've got a great team that's dedicated to that. And we're very, very excited about that exact opportunity for EchoPark. Yes, we need it. We need in an omnichannel environment, whether the customer wants to come in and test drive the car or sit at home and their underwear and buy a car, we need to be in a position where we can take care of that guest all the way through that buying journey. And it's great because at EchoPark, they can come, they can test drive a car, many of our competitors. You can't even test drive a car, you just got to buy it. And we want to put ourselves in a position where they can do all of that, and that is part of that spend. So great, great question, much appreciated.

Our next question is from Michael Ward with Citi.

What are -- you mentioned some variables that are giving you confidence. I don't know if they're internal or external to step up the growth again at EchoPark. Can you talk about some of those?

Go ahead.

This is Heath. One of them is obvious, the external triggering is the inventory returning. That's going to be a big part of it. And we've said that from the beginning that once that inventory starts returning, and I think we all believe it's going to take the 28% to 29% to get back to the 2019 number, but that's the external. And the other -- the internal is the fact that we've seen we can actually make really good EBITDA even at these lower units that are being sold. And so a lot of the efficiencies that we have seen and done internally gives us confidence that now we can grow and the branding that David was mentioning at our older locations, we can command a higher price and get a higher GPU because it's been there long enough that the word-of-mouth branding is working. So that, coupled with the inventory coming back, coupled with the things we've learned with this lower unit environment are the things that give us confidence that it's time to grow again.

Number -- go ahead, I'm sorry.

Well, we've said for the last few years, as soon as inventory begins to return, you're going to see us methodically start and strategically growing. Inventory is returning, and we're going to start methodically and strategically growing.

And one of the things that's most impressive because of the environment we were in, we got a lot better of finding alternate sources to buy, better buying off the street. And so all of that is going to help us as we grow as well.

Also, this is David. Also, the economics of what a new EchoPark location and the money we're going to spend on those is going to be far less than some of the locations we've had, some of our current locations. So it's going to be a lot easier. We have to sell a lot fewer cars at those locations to actually break even. So you're going to see those locations are going to be highly profitable.

Did I hear the number right, your goal is to get to 1 million units?

That is correct.

Over 1 million.

Yes. It's 1 million-plus units. And so that's not a new number. If you go back and you look at our growth trajectory from '18, '19 before COVID hit, we were saying this exact same thing. We're on our way to making that happen. And we were well on our way and the whole world changed. Now methodically and strategically, we're on our way again, and we darn well believe that, that is something that we can do. And we know we've got the pricing methodology. We've got the inventory management, and we've got the guest experience. We're adding technology, our branding. We've been doing this for a long time, and we're very excited about this day. It's a long time in coming.

Yes. It's a big deal. Secondly, 2 of the headwinds that kind of hit in 3Q were BEVs and JLR. You didn't mention you had a JLR acquisition. What's the inventory situation like with JLR? And how did the -- what's the latest trend on the BEV side?

Yes. So we saw a lot of BEVs because of the tax credit going away in the third quarter, that significantly dropped. And we'll see what happens in this upcoming calendar year, but maybe settle in, in the 5% to 7% range, who knows. JLR's inventory was impacted by a multitude of things, but coming back now. And we're right on plan with our acquisition there, which is great. we were real green with those guys, really understand that brand. And the acquisitions that we made in California, I mean, JLR, Beverly Hills, it all goes together. That's a great Newport. That's a great fit for us. And so yes, we're very excited about that acquisition. Their inventory is returning. But there are another one that are going to be faced with the tariff issue, right? There's not a plant here and they're faced with this, as is Porsche, as is Audi. These are all things that they're going to pass on expense to the consumer, but fantastic product and our inventory is improving as every month goes on with them.

Yes. Unfortunately, the JLR customers, people love those cars. We've got multiple customers that have more than one in the garage. So it's a great great brand. We're excited about that acquisition.

And Mike, on the BEV mix, we saw north of 12% of our sales mix in the third quarter was EV with the pull forward demand from the federal tax credit expiration, but it was only about 4% of our mix in the fourth quarter. And you've seen our inventory mix of EV become more in line with that kind of 4%, 5%. So it's benefiting GPUs relatively speaking. BEVs are still $100 headwind in the fourth quarter to blended GPU, but that was down from $300 in the third quarter. And so as we go forward, if the OEMs can continue to produce the right BEVs for the right markets as importantly, I think that becomes less of a headwind for us going forward.

Our next question is from Glenn Chin with Seaport Research Partners.

Just revisiting the pricing discussion. Jeff, you mentioned a few times OEMs cutting margins. Can you just clarify, is that a reference to dealer margin?

Both. I mean you've got dealer margin in some manufacturers being cut. You've got price increases, 1%, 2%, 3%. You've got all kinds of different things going. And then you've got manufacturer partners doing a great job from my perspective on their part, cutting spend where the dealer and the manufacturer got together and said, we really didn't need this program. And so they're doing everything they can to fight this tariff battle. But again, if you go back to '25 and you look at some of the losses that some of our manufacturers took, it was a lot and they did an amazing job fighting this battle. They're not going to fight that battle by themselves forever. It's just not going to happen. They're going to have to pass on -- and I just -- we'll see what happens from a pricing perspective, from a margin perspective. We're working incredibly close with all of them. And everybody's got the right mindset. Everybody wants to do the right thing, but there's only so much room before you have to start passing on price increases to the consumer.

Yes. And on a related note, are you seeing any signs of them decontenting, taking out equipment?

Absolutely. I mean everybody is looking at it is what can we do to pare down the price of a vehicle, whether it's wheels, you name it. That's something that is a topic of conversation across the board.

Any items in particular, Jeff, that stand out to you?

No. I mean I could probably go get you some detail, but not off the top of my head. I mean wheels definitely are part of that. The infotainment systems are certainly changing. And really, we're heading in one direction when BEV first launched because of the amazing technology in those vehicles. I think that's being tightened up and more to come. We're really sort of at a crossroads, an inflection point as manufacturers put their arms up and say, enough is enough. dealers certainly can absorb those kinds of hits and pricing is going to have to change or something is going to have to change.

Interesting times. Okay. And then just a question on the outlook. you're expecting a 10% increase in floor plan interest expense. Is this a function of higher store count? I know you guys acquired those JLR stores last year. Or is that a function of you expecting to carry higher inventory levels or both?

It's really on store count and brand mix as well as the inflationary cost of vehicles. Our floor plan is based on the dollar value of the invoice cost. And if the OEMs are going to pass along with the model year '26 increases we've seen as well as what we expect in '27. And then compound that with -- we carried a higher floor plan offset balance for most of the last year, depending on what we do from a capital deployment perspective going forward, you could reduce the benefit that we see against floor plan somewhat. So it's a combination of factors.

Okay. Yes, that makes sense. But just to confirm, your floor plan rates are variable, no. So any reduction in rate -- right, the rate environment should be a favorable offset to that. Is that accounted for in your outlook? Yes, and that's accurate.

There are no further questions at this time. I'd like to hand the floor back over to David Smith for any closing comments.

Thank you very much, everyone. We'll speak to you next quarter.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Good morning. Welcome to Sonic Automotive Third Quarter 2025 Earnings Conference Call. This conference call is being recorded today, Thursday, October 23, 2025. Presentation materials, which accompany management's discussion on the conference call can be accessed on the company's website at ir.sonicautomotive.com.

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 market or otherwise make statements about the future. Such statements are forward-looking and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission.

In addition, management may discuss certain non-GAAP financial measures as defined by the Securities 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, Chairman and Chief Executive Officer of Sonic Automotive. Mr. Smith, you may begin your conference.

Thank you very much, and good morning, everyone. As she said, welcome to the Sonic Automotive Third Quarter 2025 Earnings Call. Again, I'm David Smith, the company's Chairman and CEO. Joining me on today's call is our President, Jeff Dyke; our CFO, Heath Byrd; our EchoPark Chief Operating Officer, Tim Keen; and our Vice President of Investor Relations, Danny Wieland.

I would like to open the call by sincerely thanking our amazing teammates for continuing to deliver a world-class guest experience for our customers. We believe our strong relationships with our teammates, guests and manufacturer and lending partners are key to future success. And as always, I would like to thank them all for their continued support and loyalty to the Sonic Automotive team.

Turning now to our third quarter results. Reported GAAP EPS was $1.33 per share. Excluding the effect of certain items as detailed in our press release this morning, adjusted EPS for the third quarter was $1.41 per share, a 12% increase year-over-year. Consolidated total revenues were an all-time quarterly record of $4 billion, up 14% year-over-year. All-time record quarterly consolidated gross profit grew 13% and consolidated adjusted EBITDA increased 11%.

Our third quarter earnings were negatively affected by a significant increase in medical expenses and a higher-than-expected effective income tax rate, which partially offset the strength of our operating performance.

Moving now to our franchise dealership segment results. We generated all-time record quarterly franchise revenues of $3.4 billion, up 17% year-over-year and up 11% on a same-store basis. This revenue growth was driven by a 7% increase in same-store new retail volume, a 3% increase in same-store used retail volume and a 6% increase in same-store fixed operations revenues.

Third quarter new vehicle volume benefited from an increase in consumer demand for electric vehicles ahead of the expiration of the federal tax credit, which increased our retail sales volume and average selling price, but pressured new vehicle and F&I gross profit per unit.

Our fixed operations gross profit and F&I gross profit set all-time quarterly records, up 8% and 13% year-over-year, respectively, on a same-store basis. These 2 high-margin business lines continue to increase their share of our total gross profit pool, eclipsing 75% of total gross profit for the third quarter, mitigating the potential tariff impact on vehicle pricing and margin to our overall profitability, while also leveraging our SG&A expenses more efficiently than incremental vehicle-related gross profit.

Same-store new vehicle GPU was $2,852, down 7% year-over-year and 16% sequentially due to a surge in pre-tariff consumer demand that drove an increase in GPU in the second quarter of 2025. Additionally, a higher mix of electric vehicle sales in the third quarter reduced our franchise average new vehicle GPUs by approximately $300 per unit.

On the used vehicle side of the franchise business, same-store used volume increased 3% year-over-year and same-store used GPU increased 10% year-over-year and decreased 4% sequentially from the second quarter to $1,530 per unit. Our F&I performance continues to be a strength with third quarter record franchise F&I GPU of $2,597 per unit, up 11% year-over-year and down 5% sequentially due in part to the elevated electric vehicle sales mix in the third quarter, which reduced average F&I GPU by approximately $100 per unit.

Absent the transitory third quarter EV headwinds, continued strength in F&I per unit supports our view that F&I will remain structurally higher than pre-pandemic levels even in a challenging consumer affordability environment as we continue to fine-tune our F&I product offerings and cost structure. Our parts and service or fixed operations business remains very strong with an 8% increase in same-store fixed operations gross profit in the third quarter.

Same-store warranty gross profit continued to be a tailwind in the third quarter, up 13% year-over-year despite strong warranty performance in the prior year period, and same-store customer pay gross profit grew 6% year-over-year -- we believe this continued strength in customer pay revenue is attributable to the increase in technician headcount we achieved in 2024 and our efforts to not only retain these technicians, but to continue to grow our technician capacity in 2025.

Turning now to the EchoPark segment. Third quarter adjusted segment income was $2.7 million and adjusted EBITDA was $8.2 million, down 8% year-over-year. For the third quarter, we reported EchoPark revenues of $523 million, down 4% year-over-year and gross profit of $54 million, down 1% year-over-year. EchoPark segment retail unit sales volume for the quarter decreased 8% year-over-year, and EchoPark segment total GPU was a third quarter record of $3,359 per unit, up 8% per unit year-over-year, but down 10% sequentially from the second quarter.

While we expected EchoPark used GPU pressure in the third quarter, our ability to acquire quality used vehicle inventory at attractive prices was challenged by unexpected off-rental supply headwinds, contributing to approximately 2,000 fewer retail unit sales than we forecast in our July guidance. While these headwinds persisted through September, we remain focused on increasing our mix of non-auction sourced inventory going forward to benefit consumer affordability and retail sales volume.

When combined with the strategic adjustments we have made to our EchoPark business model, we believe we are well positioned to resume a disciplined store opening cadence for EchoPark in 2026, assuming we used vehicle market conditions sufficiently improve.

Turning now to our Powersports segment. We generated all-time record quarterly revenues of $84 million, up 42% year-over-year and all-time record quarterly gross profit of $23 million, up 32% year-over-year. Powersports segment adjusted EBITDA was an all-time record -- quarterly record of $10.1 million, up 74% year-over-year, driven by record sales volume at this year's 85th Sturgis Motorcycle Rally. We are beginning to see the benefits of our investment in modernizing the powersports business, and we remain focused on identifying operational synergies within our current network before deploying capital to further expand our powersports footprint.

Finally, turning to our balance sheet. We ended the quarter with $815 million in available liquidity, including $264 million in combined cash and floor plan deposits on hand. Our focus on maintaining a strong balance sheet and liquidity position allowed us to complete the acquisition of Jaguar Land Rover, Santa Monica in the third quarter, following our previously announced acquisition of 4 Jaguar Land Rover dealerships in California at the end of the second quarter, cementing Sonic Automotive as the largest Jaguar Land Rover retailer in the U.S. and further enhancing our luxury brand portfolio.

Going forward, we remain focused on deploying capital via a diversified growth strategy across our franchise dealerships, EchoPark and power sports segments to grow our revenue base and enhance shareholder returns. In addition, I'm pleased to report today that our Board of Directors approved a quarterly cash dividend of $0.38 per share payable on January 15, 2026, to all stockholders of record on December 15, 2025.

We continue to work closely with our manufacturer partners to understand the potential impact of tariffs on manufacturer production and pricing decisions and the resulting impact tariffs may have on vehicle affordability and consumer demand going forward. To date, we have not seen a material impact on vehicle pricing as a result of tariffs, but our team remains focused on executing our strategy and adapting to ongoing changes in the automotive retail environment and macroeconomic backdrop, while making strategic decisions to maximize long-term returns.

Furthermore, we remain confident that we have the right strategy and the right people and the right culture to continue to grow our business and create long-term value for our shareholders.

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

[Operator Instructions]

Our first question is from Jeff Lick with Stephens.

You guys have an interesting little used car market test to in your business model with given the franchise business in EchoPark it looks like you kind of outperformed your peers and did pretty well in the franchise and then EchoPark had some issues. Obviously, you mentioned the rental supply headwinds. I was just wondering if you could elaborate even more, I guess, kind of what what's the saying about where the used car market is in general? And any specifics you could give?

This is Jeff. From a franchise perspective, obviously, we trade for a lot more cars on the franchise side because of the new car business. And so we have really focused on dropping our average cost of sales. So we're trading, we're being more aggressive on our trades. I think our average cost of sales moved from $37,000 over the last 4 or 5 months down into the $33,000 range, $34,000. That makes a big difference.

We're focused on bringing even down further. We'd like to get below $30,000. A little harder to do on the EchoPark side. because we're acquiring most of those vehicles out of the auctions, although we've been focused on buying more cars off the street. And as you said, the rental car company issue, as David talked about in his opening comments, it dried up for us, that cost us about 2,000 units during the quarter. A little bit of a surprise to us. We're offsetting that, working with our new car franchises and our buying team by getting more aggressive on buying vehicles really for EchoPark under the $24,000 price target. And you'll see us improve that as we move through the fourth quarter.

And this is Heath. When we think we started an initiative with the franchise of really focusing on a good process and putting in technology for buying off the service lane. So that's really helped that side of the business as well.

And then just a quick follow-up. On the $31 million in incremental comp, which I think a good chunk of that was medical expansions, could you just elaborate? And where does that stand going forward?

Yes, sure. This is Heath. First of all, we're guiding, as you know, for the full year in the low 70s. If you look at Medical, which was driving that, it was $0.05 worse sequentially from Q2 to Q3, $0.10 worse year-over-year. We expect medical to be flat from Q3 to Q4. So total SG&A for Q4 is expected to be the 72.8%. But it is driven by the medical and that is utilization as well as increased cost we are self-insured. And so obviously, everyone is getting an increase in medical premiums going forward. And so we're addressing it as every other company will be increasing the premiums collected which should handle that issue that we saw in Q3 and expect it to be similar in Q4.

Our next question is from Michael Ward with Citi Research.

I wonder if you can I wonder if you can provide any color on a walk in the franchise growth from Q3 to Q4 and the mid to 2026 because it sounds like the $100 impact from BEVs, and it sounds like there are some other unusual events. So how do we look out? It sounds like 4Q is higher and then maybe even relatively flat on a variable gross basis for over a year? Is that what we're looking at like kind of more consistency, ups and downs, but kind of moving to the same range?

This is Jeff. I think with the increase in the bed volume at the end of the quarter, that really drove -- I think it was $100 down in front [indiscernible] $50 back-end PUR sequentially. But I expect a return to normal margins and maybe even improving margins as we move into the fourth quarter, we're seeing that already because of the lack of bets. We really pressed hard to move all our bets out. We're about 4% of our total inventory today. Our bed units. I think that's about 800 units on the ground. We have significantly reduced our exposure to that product which has been obviously a drag for everybody from a PUR perspective.

So I would expect fourth quarter margins to improve sequentially. And I would expect them to continue to improve as we move into 2026 or at least be flat with where we are in Q4. So a little hit at the end of the third quarter, but smart because we reduced our exposure to all those BEV units that we had on the ground. And that was just the right thing to do from our perspective.

And this is Heath. Just one color. If you look at in total, the EV, we make less gross by $3,275. And the mix in Q3 went from 8.3% in Q2 to 11.9% in Q3. So that's what created the $100 headwind in front and a $50 headwind in F&I.

And just rounding that out, this is Danny. I mean that's a 54% volume increase from Q2 to Q3, which is in line with what the industry saw from an EV penetration. But as you think about that, we sold 3,600 EVs in the third quarter, and we would expect that volume to be much lower in the fourth quarter now that the federal tax credit is not available. So the normal seasonality we would expect from a volume perspective, may not hold, where we typically see a 10% uptick from 3Q to 4Q in new vehicle volume.

Last year was even more of an anomaly closer to 20% because of the BMW stop sale issue we saw in the third quarter of last year, where we pushed sales into 4Q. But as we think about it, it could be more of a mid-single-digit volume growth sequentially from 3Q to 4Q because of the lack of EV. That should obviously benefit GPU given what Heath said about the relatively lower margins. But from a total volume perspective, it's something to be mindful of.

And as you look at the JLR business, is it fair to say that, that had a bigger impact on parts and service than it did on the new vehicle side?

Yes. This is Jeff. We have plenty of new vehicle inventory supply. That wasn't an issue at all. And it is a drag on the parts and service business. But that's slowly going to get corrected and come back and but definitely, the drags in parts and service, not on the volume side.

But I will say -- this is David. I will say that we've benefited from scale in our -- being the largest dealer now for JLR has been really fantastic. We've had inventory when others haven't. And I think going forward, I think that those acquisitions are going to prove to be some of our best because those are -- you mentioned your previous question with GPU. Those are some of our greatest highest GPU stores in the company.

Make sense. If I can sneak in 1 more. Just on the powersports side. You've got great performance there. And do you have any data that -- how big this industry is? And is there a better consolidation opportunity in power sports than you would see in the new vehicle used vehicle side?

I don't know if there's a better, but there is certainly a big opportunity. And we're learning how to operate the powersports business. You can see we sold $110 million new and used motorcycles or Harleys during the rally, that beat the all-time record of 718 that was set years ago. And that's just training, technology, pricing, inventory management and bringing things in our skill sets that we have on the franchise side of the business and [indiscernible] the business into powersports.

And as David said in his opening comments, we have great opportunity to continue to grow the footprint that we have, but there are certainly -- we're getting deals every day coming across our desk with great opportunities to buy. And as we get better and better at operating, I think you'll see us expand that footprint, great money and a great opportunity, great customer base. So bringing our technology and our processes is making a big difference.

And this is David. I'll just add that it's a real complement to our team that we're now the manufacturers are coming to us wanting us to buy more and come to us with some opportunities. So that's -- and that's how we bought surges, actually, those deals. And so it's great to see we're really proud of the progress our teams made.

And just to see a little bit color, we view it, it looks like 1990 retail automotive, very fragmented, not a lot of technology, not a lot of sophistication and marketing understanding how do you make money and use the service. So we think there's a huge opportunity to create the same kind of formality in that industry as many have done in the automotive retail.

And as you pointed out, a lower multiple, right?

So way lower. Yes.

We hear where you're going with that. You're right.

There's great opportunity, which is why we got into it. And you got to remember the people who -- a lot of our customers are super passionate about the products that we sell. They'd rather have that than a car in many cases. So it's a great business to be in.

There were over 800,000 guests at the rally this year. So if you think about it, we sold 1105, just think about the upside opportunity just at the rally alone that closing ratio is not where we want it to be. We can do a lot more. We need more motorcycles and more process and more technology, but we're slowly bringing that on and it's starting to make a difference. And we've really increased the used vehicle the used side of the business, too. That business is up 70% or so for the year, and that's going to continue to grow as that's not something that, that industry has been focused on.

It sounds like a similar playbook. I really appreciate it.

Our next question is from Rajat Gupta with JP Morgan Chase.

Great. Just had a couple of follow-ups on the GPU comments. I'm curious that in the third quarter outside of the electric vehicle headwind to GPs. Was there anything that surprised you in the performance there, perhaps with respect to like how the OEMs are managing the dealer margin or the invoice margin automation talked about some different ways in which the OEM might tackle this in the form of lower back-end incentives or volume in centers, et cetera?

Just curious if there was any change there that you observed? And if anything, was it onetime? Or would you expect that to continue? Relatedly, I was a little surprised by your comment that you would expect 2026 new vehicle GPUs to be similar to the fourth quarter. I mean our understanding is always that fourth quarter is seasonally higher due to the larger mix. So are you taking into account like even a lower electric vehicle mix in 2026 versus the fourth quarter that's maybe driving that assumption? Just curious if you could tie those comments.

Yes, that's exactly right. BEV is going to be way, way lower as a percentage of our overall volume than it has been over the last couple of years, which has driven the margin down. And then no real surprises, I don't think, from ex bet for the first 9 months of the year for the quarter. In terms of margin, I think that there are going to be some surprises as we move into the fourth quarter because there's been -- there's an inherent, you look at October, October slowing, in particular from a luxury perspective.

And I think that the manufacturers are going to have to get super aggressive with incentives in order to move inventory. Our inventory is at the highest level from a new car perspective, that it's been all year. And our competitors are the same as we watch it. And I think you're going to find that BMW, Mercedes, they're going to have to be super aggressive. Right now, we're seeing some double-digit decreases in those brands volumes year-over-year. And we're not alone in that category. And so I do think you're going to start seeing some super aggressive pricing. It needs to come. Those brands need to step up and bring more incentives in order to engage in the fourth quarter. or it's going to be a more difficult fourth quarter from a luxury perspective than many are projecting.

Got it. Got it. Okay. That's helpful.

That's something that I would encourage you to watch real closely is what's going on, on the luxury new vehicle side of the business, exchanging a BMW for a Ford exchanges a lot of margin one way versus the other. And I think that's something that we all need to watch as the industry from a luxury perspective, slows down in the fourth quarter. Usually, it speeds up. And so we're hopeful that the manufacturers will see that and bring -- start to get really aggressive on incentives.

Understood. Understood. We'll keep an eye on that. And a follow-up was on just the warranty penetration. It looks like in drop from the second quarter by a couple of hundred basis points. I'm curious, was that just again like mix driven because of electric vehicles and those are leased and your guide was like a further step down in fourth quarter. I'm just curious what's driving that. And what's like a normalized number we should assume when we head into '26.

Yes, it's Jeff. And x that out, it would have been normal numbers.

And to that point, that's with the sequential headwinds we saw in F&I is primarily the warranty penetration. You've got a higher lease mix on BEV. And then again, as we go into the fourth quarter, typically, our fourth quarter F&I is actually a bit lower because of that higher luxury lease mix that we see in 4Q in normal years. But as we go forward, we talked about, I think it was the last call that 2,700 or so is an achievable, consistent run rate in a normalized powertrain mix and brand mix for us, particularly when you think about the benefits of the new JLR stores that we've added in their F&I performance.

Our next question is from Bret Jordan with Jefferies.

This is Patrick Buckley on for Bret. Circling back on EchoPark, it sounds like there were some unique headwinds this quarter with the off-rental slowdown. Should we expect any of that to persist into next year? And I guess, should we still be thinking about an acceleration in EchoPark next year as well?

I think it will -- no, I don't think it will persist in the next year. And I think we'll find ways to overcome that by buying more cars off the street. And we're excited, as David talked about in his opening comments, we're going to start to grow EchoPark again next year. So how many stores we open, probably more tailored towards the end of the third and the fourth quarter next year. But with more off-lease vehicles coming back, inventory getting right, prices are going to continue to drop. That's going to be a big help. And so '26 should be a good year for EchoPark and then beyond. We'll open a few stores next year to, like I said, in the last 6 months and then really start growing in '27.

And this is David. I think it's really important to mention that we're building the EchoPark business just as we've built our core business, not quarter-to-quarter, but we are building it for the long haul. And so we're keeping that in mind. We're going to grow the EchoPark business just as soon as we can and grow it efficiently and smartly. Our team has gotten a lot better about about where we build and how much we spend on building and our training processes and all of that, we -- I'm just very excited about the future of EchoPark and what we can do once we really step on the gas of growth. So it's more to come in the future.

Got it. That's helpful. And then looking at the Q4 outlook for 10% to 11% growth in fixed operations gross profit. I guess could you talk about the driver moving forward there, price versus volume? Is there any tariff inflation going on there? And maybe the warranty pipeline, how does that look from today?

Warranty pipeline looks good. Lots going on. Look, what's driving this for us is our additional headcount in tech count. From March of '24, we really started focusing on growing our text, training our techs, maturing our tech. That's making a big difference. We've got the stall count. We've got the headcount, and that's making a huge difference for us and delivering. And the thing is, is that the pipeline is long. There's just -- we see growth year after year after year. And I don't see it slowing down. I see it speeding up. And so we're very, very excited about the efforts we're putting in there to grow our share from a fixed operations perspective across all of our markets.

I tell you -- this is David. I'll tell you that our team has just done an outstanding job retaining, as I mentioned in my comments, retaining and growing those techs that we really changed the game and changed the attitude of how we hire techs and retain them.

Our next question is from Chris Pierce with Needham & Company.

On the franchise side of the business, I just want to make sure I'm following was there a demand pull forward in power -- like maybe people switching powertrain choices in the third quarter and that's leading to inventories being elevated in luxury in the fourth quarter? Or are those not related? Or are we still expecting typical seasonality and we're expecting the OEMs to step up? Like how does that all sort of fit together if it fits together at all?

Well, definitely a pull forward from a BEV perspective because the incentives ended at least for most brands, and that definitely happened. And inventory is growing from a luxury perspective, we're at our highest inventory levels over the year. incentives are going to have to grow in order to speed up the volume. And we are not seeing that in October. Like I said, BMW, Mercedes, those brands for us and was doing industry checks yesterday, we're talking 15%, 20% reduction so far in this calendar month.

And I've seen that in some of our competitors as well. That's tough. The manufacturers need to step up or inventory is going to grow. I think you're going to see the same seasonality, but our growth is usually 10% third quarter to fourth quarter. This year, we're expecting that to be in the 5% range. And like Danny said earlier, last year, it was 20%. So you can do the math. The manufacturers are going to have to step up or inventories are going to grow and margins are going to start coming down. Not having BEVs going to help margin, but inventory growth can pull margin back if they don't step up and put some incentives out there. And that's a real serious situation. I said it earlier, you got to watch that, watch what happens in luxury during October, and then we'll see if that spills over in November and December.

And have we seen a situation like this where the OEMs wait and wait to pull the trigger on this? Or is it just the market is so kind of weird because of all the incentives that this is uncharted territory?

Yes. I think the market is weird with the shutdown of the government shutdown. There's some strange things going on here. The tariffs certainly are planning to roll, but we -- it's a big -- pretty big drop-off in luxury volume in October year-over-year, in particular around BMW and Mercedes. Land Rover is a little bit the same, too. Now our business is growing because we've got stores that we didn't have last year, but in our numbers. But the luxury business has slowed down in October. And the first 9 months of the year where we are, pull aheads, tariffs, all kinds of crazy news, this is just sort of a normal month October and November. And we'll see what happens. Like I encouraged Rajat earlier, you need to watch that and watch what happens from a new car luxury perspective. That's an important mix changes in bottom line, right? And that's important to watch as we move through this quarter.

Okay. And then just one on EchoPark. Can you just sort of help me understand, is it typical industry seasonality that rental car companies bring cars to auction at a higher rate in the third quarter after summer travel and that sort of didn't happen this year? Or like is there something going back to industry awareness? Is it something that unexpected that happened? Or I just kind of want to flesh that out a little bit.

Yes. Typically, they defleet. And so we pick up inventory. They did not do that this year. And I think it's just the unknown of the tariff and whether they were going to be able to buy new cars or not. And so we're seeing a little more inventory come in, but not at the levels that they normally do. We typically have 1,000 vehicles in our mix from them. And I think I looked at the other day, we were down to 133 units on the ground. And so that's just not normal.

And so we're having to replenish that. It did catch us a little off-guard in the third quarter, but still nicely EBITDA positive, and we're very excited about the year for EchoPark. I mean it would be a great year in comparison to the last few, as you know, and then really excited about '26 and '27 and moving forward with our growth plans.

Yes. I think to add to that, I think it is interesting that we can handle those kind of bumps now. We're built to be more efficient. So we don't have something that comes like this. We've got the scale and we can handle it when in the past, it was more difficult.

It didn't blow up the P&L.

[Operator Instructions] Our next question is from Mike Albanese with the Benchmark Company.

I'm just going to squeeze in a quick one here as you think about, I guess, EchoPark, right? And this was built to kind of compete with the CarMax model. And coming out of the quarter, CarMax has hit a situation where depreciation essentially had picked up pretty significantly. I think kind of a follow pull forward in demand being kind of in the first half of the year. And I'm just wondering if that heightened depreciation that I think hit over the course of like 6 to 8 weeks, it's like 2/3 of the typical annual depreciation curve, that had an impact on your business, how you think about that and kind of what that impact was?

Yes. I think we felt the same thing. MMR increases in the second quarter 106% to 107% drove our average cost of sale up. We tried to pivot to the rental sector. It wasn't available. And so we made the decision to cost us to 2,000 units in volume. So yes, we saw the same thing.

Yes, right. I guess the takeaway there being that generally, you're sourcing mix being a little bit different kind of protects you against that situation a little bit. Does that make sense?

Yes.

If you recall, we guided to back in July, we expected a little bit of front-end GPU compression, a couple of hundred dollars from 2Q to 3Q as a result of kind of what we were seeing in the wholesale market and wholesale and retail pricing spreads, what really was the headwind for us that was unanticipated was the volume impact. We didn't have alternate sources, and that's what put pressure on the the performance, if you think about those 2,000 units that are normal GPU, really that's the shortfall in 3Q that caused us to pull down our full year EchoPark EBITDA guide.

But smart not to go out and try to replenish that volume buying a bunch of cars at auction, they're going to bring the margin even down further. So good decisions made, we need to be more aggressive in buying cheaper cars off the street. And that's something we're focused on for the fourth quarter and moving forward.

With no further questions, I would like to turn the conference back over to Mr. David Smith for some closing remarks.

Well, thank you very much. Thank you, everyone. We will speak to you next quarter. Have a great day.

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you again for your participation.

Good morning, and welcome to the Sonic Automotive Second Quarter 2025 Earnings Conference Call. This conference call is being recorded today, Thursday, July 24, 2025. Presentation materials, which accompany management's discussion on the conference call can be accessed at the company's website at ir.sonicautomotive.com.

At this time, I would like to refer to the safe harbor statement under the Private Securities and Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information or expectations about the company's products or market 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. 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, Chairman and Chief Executive Officer of Sonic Automotive. Mr. Smith, you may begin your conference.

Thank you very much, and good morning, everyone. Welcome to the Sonic Automotive Second Quarter 2025 Earnings Call. I'm David Smith, the company's Chairman and CEO. Joining me on today's call is our President, Jeff Dyke; our CFO, Heath Byrd; our EchoPark Chief Operating Officer, Mr. Tim Keen; and our VP of Investor Relations, Danny Wieland.

I would like to open the call by sincerely thanking our amazing teammates for continuing to deliver a world-class guest experience for our customers. We believe our strong relationships with our teammates, our guests and manufacturer and lending partners are key to our future success. And as always, I would like to thank them all for their continued support and loyalty to the Sonic Automotive team.

Turning now to our second quarter results, primarily as a result of a noncash charge, a noncash charge relating to our annual franchise asset impairment testing, reported GAAP EPS was a loss of $1.34 per share. Excluding these noncash impairment charges and the effect of certain other items as detailed in our press release this morning, adjusted EPS for the second quarter was $2.19 per share, which was a 49% increase year-over-year. Consolidated total revenues were a second quarter record, up 6% year-over-year, while consolidated gross profit grew 12% and consolidated adjusted EBITDA increased 22%.

Moving now to our Franchised Dealerships segment results. We generated second quarter record franchise revenues of $3.1 billion, up 6% year-over-year on a same-store basis. This revenue growth was driven by a 5% increase in same-store new retail volume and a 10% increase in same-store fixed operations revenues. Second quarter results benefited from an increase in consumer demand and new vehicle sales in April and early May, which we expect was the result of customers buying in advance of anticipated tariff-driven price increases.

Our fixed operations gross profit and F&I gross profit also set all-time quarterly records, up 12% and 15% year-over-year, respectively, on a same-store basis. These two high-margin business lines continue to increase their share of our total gross profit pool, approaching 75% of total gross profit for the second quarter, mitigating the potential tariff impact on vehicle pricing and margin to our overall profitability while also leveraging our SG&A expenses more efficiently than vehicle-related gross profit.

Our same-store new vehicle GPU was $3,391, down 6% year-over-year, but up 10% sequentially from the first quarter due to a surge in pre-tariff consumer demand. On the used side of the franchised business, same-store used volume decreased 4% year-over-year, driven by lower supply of late-model used vehicles and ongoing consumer affordability challenges. Same-store used GPU increased 2% sequentially to $1,590 per unit. Our F&I performance continues to be a strength with all-time record quarterly franchised F&I GPU of $2,721 per unit in the second quarter, up 12% sequentially and 14% year-over-year. The continued growth in our F&I per unit supports our view that F&I per unit will remain structurally higher than pre-pandemic levels even in a challenging consumer affordability environment as we continue to fine-tune our F&I product offerings and cost structure.

Our parts and service or fixed operations business remained strong with a 12% increase in same-store fixed operations gross profit in the second quarter. Same-store warranty gross profit continued to be a tailwind in the second quarter, up 34% year-over-year, and same-store customer pay gross profit grew 9% year-over-year and 7% sequentially. We believe this continued strength in customer pay revenues is attributable to the increase in technician headcount we achieved in 2024 and our efforts to not only retain these technicians, but to continue to grow our technician capacity in 2025.

Turning now to our EchoPark segment. Second quarter segment income was an all-time quarterly record $11.7 million, and adjusted EBITDA was an all-time quarterly record of $16.4 million, up 128% year-over-year. For the second quarter, we reported EchoPark revenues of $509 million, down 2% year-over-year and second quarter record EchoPark gross profit of $62 million, which was up 22% year-over-year. EchoPark segment retail unit sales volume for the quarter increased 1% year-over-year, and EchoPark segment total GPU was an all-time quarterly record of $3,747 per unit, up $669 per unit year-over-year and $336 sequentially from the first quarter.

We continue to believe that our data-driven centralized inventory management strategy is a key differentiator for EchoPark, which should help to minimize disruptions from market volatility in the short term while maximizing EchoPark's long-term growth potential. When combined with the strategic adjustments we made to our EchoPark business model, we believe we are well positioned to resume disciplined long-term growth for EchoPark in 2026, assuming used vehicle market conditions sufficiently improve.

Turning now to our Powersports segment. We generated record second quarter revenues of $48.1 million, up 21% year-over-year and second quarter gross profit of $12.5 million, up 17% year-over-year. Powersports segment adjusted EBITDA was $2 million, down 13% year-over-year, but beginning to ramp up ahead of what is typically a seasonally strong third quarter. We are beginning to see the benefits of our investment in modernizing the Powersports business, and we remain focused on identifying operational synergies within our current network before deploying capital to expand our Powersports footprint.

Finally, turning to our balance sheet. We ended the quarter with $775 million in available liquidity, including $210 million in combined cash and floor plan deposits on hand.

Our focus on maintaining a strong balance sheet and liquidity position allowed us to complete the acquisition of four Jaguar, Land Rover dealerships in California using cash and floor plan deposits on hand. And I'd like to take this opportunity to welcome these teammates to the Sonic Automotive family. This acquisition closed on June 30, so there was no impact to our second quarter results, but we do anticipate these stores will contribute approximately $500 million in annualized revenues to our franchise dealership segment and make Sonic Automotive the largest Jaguar, Land Rover retailer in the U.S., further enhancing our luxury brand portfolio.

Going forward, we remain focused on deploying capital via a diversified growth strategy across our franchise dealerships, EchoPark and Powersports segments to grow our revenue base and enhance shareholder returns. In addition, I'm very pleased to report today that our Board of Directors approved a 9% increase to our quarterly cash dividend to $0.38 per share payable on October 15, 2025, to all stockholders of record on September 15, 2025.

As we told you back in April, we continue to work closely with our manufacturer partners to understand the impact of tariffs on manufacturer production and pricing decisions and the resulting impact tariffs may have on vehicle affordability and consumer demand later this year. To date, we have not seen a material impact on vehicle pricing as a result of tariffs, but that could change as the model year 2026 vehicles begin to arrive at our dealerships late in the third quarter.

Despite this uncertainty, our team remains focused on near-term execution and adapting to ongoing changes in the automotive retail environment and macroeconomic backdrop, while making strategic decisions to maximize long-term results. Furthermore, we remain confident that we have the right strategy and the right people and the right culture to continue to grow our business and create long-term value for our stakeholders.

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

[Operator Instructions] Our first question today comes from Jeff Lick of Stephens.

Congrats on a great quarter again. I was wondering, look, there's a lot of crosscurrents and noise in 2Q. Obviously, the beginning of the quarter maybe looks a little different than the exit. You have some tariff deals. I'm just curious of the things, what surprised you the most? What are you pleased with the most? And as we kind of head into the back half, what are the things you think are kind of indicative of how the back half will go versus you might say to the analyst community, hey, those particular metrics, I'd be cautious with those and don't read too much into them.

Jeff, it's Jeff Dyke. Yes, I mean, obviously, the first part of the quarter took off due to the tariff noise. It did slow down at the end of June and was slow a little bit the first week or 2 of July. But what is surprising a little bit is the business, the back half of July is picking up nicely. We're going to have a great July, and that's not something that we really anticipated. We thought it would be more average given all the noise with the tariffs. Obviously, the Japan deal is going to help. We need to secure something with the EU, but that's a surprise.

I'm very proud of our F&I performance. We've worked very hard to increase our product penetration above the 2.0 mark, and we've worked very hard on reducing cost with our partners that provide the products. And the combination of those things has really driven, as you can see in the quarter, a nice, nice increase. And we expect that increase to continue. The 2,700 number is a number that feels good for us moving forward from a franchise perspective for the rest of the year.

And then obviously, we're very, very proud of the work that we've done at EchoPark. EchoPark is just on fire, selling a lot of cars, a little more margin pressure, I think, in the third quarter than we might anticipate in maybe the back half of the year. But we're hitting all of our expectations. Obviously, the profit is great, and that's putting us in a position to really begin to expand EchoPark as we move into 2026.

And this is David. I think that it's important to emphasize that our EchoPark stores still have a lot of runway left, a lot of performance increases to go yet in our current store base. I think that's exciting. And our team did obviously an outstanding job.

Another point to note is that our Powersports business, again, is a seasonal business, and we have our -- we're very excited that coming up next month is our 85th Annual Sturgis Motorcycle Rally, the 85th anniversary. We're expecting as many as 800,000 people will come out there for that. And we're expecting a huge -- some huge numbers to report on that in the next quarter.

And then just a quick follow-up. I'm curious your thoughts on the lease return kind of trough in this year versus next year. I don't want to say it's going to be a boom, but it should -- it would be hard for it not to be considerably better than this year. Curious how that ripples through both in your franchise business and EchoPark.

Yes, that's huge. I mean we are at the bottom of this now. And obviously, as lease returns pick up, that makes a huge difference in our used vehicle inventory and our ability to grow our volume, makes it a lot easier to access inventory. So it's going to make a difference in '26. There's no question, it will help EchoPark as well. And then as we get into '27 and '28, it really gets back to the pre-pandemic levels. And that is a game changer from an EchoPark perspective.

It does help our franchise business, there's no question, but it allows EchoPark to have access to inventory that's just really not as accessible right now. We're doing a great job buying more cars off the street. We're hitting at times above 40% of our total mix off the street in trades, which is huge. That's double what we were doing last year. But the lease returns are going to make a big, big difference, and that's just a honey hole that's coming for us.

The next question is from Rajat Gupta of JPMorgan.

I had one question on EchoPark and just one follow-up on GPU. On EchoPark, if you look at just the volume trajectory in the second quarter, obviously, GPUs were very strong. Is there an element over here of trading off one for the other? Because we would have expected volumes to do better. just relative to the industry seasonality. So curious if there is a bit of a change in approach or strategy as to how you want to grow overall EchoPark profits versus just like historically how you had wanted to grow the business? And I have a quick follow-up.

We're just being cautious in terms of the inventory management, and Tim can chime in here in a second. But yes, we're being cautious in terms of how much inventory we're buying and maximizing our margin. So the total gross dollars is growing the bottom line.

And just -- I would expect this to kind of continue for the rest of this year kind of in this range in comparison to last year. somewhere in this ballpark. And then for us, I think we announced $50 million to $55 million in terms of EBITDA for the year, now upping our guidance from $30 million to $35 million, I think.

So yes, I think that's right. But it doesn't mean there's not more volume there. We're just being real cautious and not going out overbuying and making some of the mistakes that we see happening out there today. And so it's not a concern for us. We can turn up the volume when we want. But we're just managing the gross and the profit and the volume.

And I think Tim and team are doing a great job. Tim, do you want to add to that?

Yes. I mean, the second quarter, we saw a fairly unstable MMR market going on the upside, probably caused by the tariff scares as well. And so we managed through that very strategically, held on to our gross, didn't buy up, kept day supply where we wanted it and thought we managed through that well, and we'll continue to do that through the rest of the year as we see opportunities.

And I think one more point, this is Danny. If you look at the trend in SG&A at EchoPark, despite the fact that we saw that sequential step down in volume, the SG&A actually levered about 110 basis points from 1Q to 2Q. So it just proves we've got some flexibility in the model based on the different contributions of gross, be it volume, front-end gross or F&I that we can adapt and flex over the next couple of quarters here as the used market becomes more of a tailwind for us.

Got it. Got it. Yes, it was nice to see the SG&A step down, clearly. And then -- sorry, I had just one more on just F&I before the GPU question. You mentioned some of the changes in your agreements with the partners that drove the F&I increase. Curious if you could elaborate a bit more on that. Was it on the warranty side? Was it on like the lending side? And was this something that was left on the table like in the past, and this is like more entitlement levels? Just curious if we could get a little more color on that.

Yes, sure. Mostly -- this is Jeff, mostly on the product side. And what we did was put RFQs out, RFPs out and renegotiated all our positions. And our team did an amazing job. We've been doing that since maybe the end of last year to now, and that's starting to really pay off. We're saving a ton of money. We've been making our partners a lot of money selling their products. And as we studied that and we looked at how much money they were making, we thought there was opportunity there for us to share in some of the dollars, and that came to fruition. And so we're hitting it. Not only are we performing better at the store level, but we're also going out and reducing our costs.

So those things are coming together at the same time, and that's driving much higher penetration. It's driving better margin. And what's great is if we don't sell one more car or one more product, we're making more money. And that was our -- that was a big focus for us. Like technicians were the first half of last year, this has been a big focus for us -- the first half of this year, and it's really beginning to pay off, and we expect that to continue as we move forward.

Got it. Got it. That's very clear. And just lastly, just on new GPUs, just more housekeeping question. Any color you could give us on how like the different months of the quarter did on the new vehicle GPU, April, May, June, how that trended, that would be helpful.

Yes. GPUs in the beginning of the quarter were stronger than they were at the end of the quarter.

Yes. As we mentioned, the demand spike that I talked about in our opening comments with the anticipation of the tariffs coming in, people did absolutely rushed out to buy. So...

Yes. I mean we're $3,600 in that ballpark in April, maybe $3,250 in May and $3,300, but it's the end of the quarter, so we get some pickups and stuff in June. But the front-end margin for new is materially higher than what we even anticipated it to be for this calendar year. And I think it's going to stay in the same ballpark that we've been running. There's not any reason for it to massively drop off, which is great. That's a great tailwind for us for the remainder of the year.

The next question is from Chris Pierce of Needham & Company.

Can you just go in deeper on Rajat's question there. If we look at front-end growth at EchoPark, I just want to confirm, is that sort of a change in strategy or it's due to certain market dynamics in this point in time? Because I noticed now you're guiding to total vehicle GPU, not F&I GPU. So I just kind of want to get a sense of if it's just a unique moment in time, you're able to take advantage of that or due to inventory or if it's sort of business as usual going forward?

Look, at the end of the day, we're buying more cars off the street. And as we buy more cars off the street, margin is going to go up. And that's that 40% number I was talking about. makes a big difference there. But we do expect margin pressure in the third and fourth quarter. Used car inventory is moving around. Manheim, as Tim said earlier, the Manheim indexes are moving around. A lot of that's being played off just because of the tariffs.

So it's going to be in and around the same ballpark. But if there's $50 or $100 worth of margin pressure there is probably somewhere in that ballpark in total and should get better as we go towards the end of the year, but there's a little uncertainty out there right now, and we'll see how that plays out. Not concerned in terms of the overall volume and the profitability. That should continue to stay solid, that's why we took our forecast up for the year.

Chris, this is David Smith. And something to note is you remember, our first EchoPark stores we opened in 2014. And if you look at our guest experience and our market penetration. In a lot of markets, we're the #1 used dealer in the market. And if you look at our -- we've got now over 100,000 5-star reviews. A big part of that is of our GPU, I think, is our guest experience and our repeat customers who are just choosing to buy from us. Again, we've had multiple sales to the same family, and they tell that it's the entire guest experience, I think that's paying off for us. So it's -- we have the #1 rated guest experience in the industry.

And Chris, to your point, this is Danny. On the total GPU shift in the guide away from the F&I piece, you've seen now for the last two quarters, we've improved our EchoPark F&I per unit by about $200 a unit quarter-over-quarter, both in 1Q and in 2Q and driven by some of the cost structure negotiations that Jeff was talking about. But that gives us more flexibility in terms of the total gross profit equation for EchoPark, and it's something where if we face front-end margin pressure, as Jeff as Tim has said in the coming quarters, the F&I gains help us maintain that kind of total $3,400 to $3,800 range, which is pretty comparable to what we make on our franchise side despite the pricing differences at EchoPark.

Okay. Perfect. And then just kind of playing off of that, you had talked about the RFQs you put out there for -- with your existing lenders. Are you seeing new lenders come to the auto loan market the way like Carvana is talking about finding new lenders? And is that causing sort of -- I don't want to say a power shift, but a dynamic shift where you're able to have a little more pricing power? And is that -- or is this just leverage with existing lenders as you kind of grow the relationships and have these long-standing relationships?

Yes. This is product providers that we're talking about, more along the lines of warranty and GAP and those products that we sell, that's where we're getting the leverage. We're not seeing a run of new lenders coming into the marketplace. our margin that we're making from financing is relatively the same. Where we're getting our pickup is through product sales and the cost reductions that we're seeing there. And that's just going back and really working hard. The teams worked very hard on restructuring deals, still giving great wins to our partners. There's no question.

But sharing in some of the wins that they've had over the years on the backs of our team working really hard to grow their business. And so we want to share in some of that, and that's what's happening. And you're seeing our cost reduce, thus growing our margin, which is great. Like I said earlier, we're not sell another car. We're not selling another product. We can keep the same numbers and have better results because of the work the team has done.

Okay. Perfect. And just lastly for me real quick. EchoPark unit guidance is unchanged, which implies maybe a little bit of a modest pickup in the second half, not pick up, but in a sense of pickup in terms of the growth you just printed at EchoPark units. Is that driven by easier comps in the second half of the year? Or is that just some end market view?

It's a little bit of a combination of the two. If you were to look at the back half of '24, there were some challenges. There were some pockets of consumer weakness on the used car side. So it's a combination of those two things, I think, as we look forward.

[Operator Instructions] Our next question is from Bret Jordan of Jefferies.

This is Patrick Buckley on for Bret. On the franchise used GPU side, with the first half settling a bit above the upper end of the $1,500 annual guide, should we expect some moderation into the second half? And what sort of headwinds could you be expecting there?

I think that we're going to be in and around that number. It could be just a little bit like at EchoPark. July and August, we're just not quite sure from a tariff perspective, what's happening. It's putting day supply pressure and manufacturers are acting a little quirky, trying to get us to take inventory and put inventory in loaner cars and do things that they had been getting away from. So it might put a little pressure, but in and around that number, I feel comfortable. Yes, the volume should be higher.

Got it. That's helpful. And then I guess going off that, as you said, a lot of moving pieces with tariffs you have to shake out. But could you talk a bit about your expectations for new vehicle SAAR trajectory from here and expectations for second half and maybe the annual year?

I mean your guess is as good as mine. At the end of the day, in the quarter, we went from 17 million to 15 million. So it's all over the board. But a 15 million, 16 million SAAR kind of feels right, somewhere in that ballpark, unless something else crazy happens and we get another pull ahead or something happens. But somewhere in that ballpark -- interest rate is kind of our guess. Yes, interest rates drop, that could change the game as well. We'll just have to see, but it's somewhere in that ballpark.

There are no further questions at this time. I'll turn the call back over to David Smith for closing comments.

Well, thank you, everyone, for joining us for the call. We'll speak with you next quarter. Have a great day.

Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may disconnect your lines, and have a wonderful day.