Sonic Automotive, Inc.

Good morning and welcome to the Sonic Automotive first quarter 2026 earnings conference call. This conference call is being recorded today, Thursday, April 30th, 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 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 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 Bird, our Echo Park chief operating officer, Mr. Tim Keene, and our vice president of investor relations, Mr. Danny Weiland. 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 gap 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 franchised 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 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 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 profits. 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 franchised F&I GPU of $2,670 per unit, up 9% year over year, and up 2% sequentially. Turning now to Echo Park. 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 Echo Park revenues of $581 million, up 4% year over year, an all-time record gross profit of $68 million, up 6% year over year. Echo Park segment retail unit sales volume for the quarter increased 3% year-over-year, and Echo Park 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 Echo Park 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 to $20 million, with the majority of that investment occurring in the second half. Turning now to our power sports 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 power sports 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, Falcon's Fury Harley-Davidson, Raging Bull Harley-Davidson, and San Diego Harley-Davidson. The acquisition of these five 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 power sports 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 31st, 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.

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 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.