Sonic Automotive, Inc.

Good morning and welcome to the Sonic Automotive 4th 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 8K 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 Bird, our Echo Park chief operating officer, Tim Keene, and our VP of investor relations, Danny Weiland. I'd 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 Echo Park 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 gap 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 franchised total gross profit was a fourth quarter record, up 4%, and declined 2% on the 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 two 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 profits. 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 Echo Park, 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 Echo Park revenues of $481 million, down 5% year-over-year, and fourth quarter record gross profit of $54 million, up 9% year-over-year. Echo Park segment retail unit sales volume for the quarter decreased 6% year-over-year, and Echo Park 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, Echo Park 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 Echo Park business model, we believe we are well positioned to resume a disciplined store opening cadence for Echo Park beginning in late 2026 assuming used vehicle market conditions continue to improve. In the long term, we intend to expand our Echo Park platform to reach 90% of U.S. car buyers, selling over a million vehicles annually, while continuing to provide a superior guest experience. We believe investment in brand marketing will be key to our long-term Echo Park growth plan, and we expect to begin to invest in this effort during 2026. potentially increasing advertising expense by $10 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 power sports 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 38 cents per share payable on April 15th, 2026 to all stockholders of record on March 13th, 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 very much.

We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from Jeff Lick with Stevens Inc.