Company Overview - Sonic Automotive (NYSE:SAH) is a leading automotive retailer in the United States, offering a wide range of new and used vehicles, as well as related services through its franchised dealerships and its subsidiary EchoPark, which focuses on pre-owned vehicle sales [1] Financial Performance - In the fourth quarter of 2025, Sonic Automotive reported a total revenue decline of 1% to $3.87 billion, despite positive earnings per share [3][6] - The company has a high long-term debt-to-capital ratio of 0.63, significantly above the industry average of 0.25, indicating a substantial debt burden [3][6] Market Sentiment - Barclays set a price target of $67 for Sonic Automotive, closely aligning with the stock's current price of $66.63, reflecting a minor difference of approximately 0.56%, suggesting the stock is trading near its expected value [2][6] - The stock has shown a 3.25% increase, or $2.10, indicating positive investor sentiment [2][6] - The stock has fluctuated between $62.12 and $67.06 today, with a market capitalization of approximately $2.28 billion and a trading volume of 380,710 shares, reflecting active investor interest [5][6] Subsidiary Performance - EchoPark, a subsidiary of Sonic Automotive, is expected to experience a decrease in EBITDA for fiscal year 2026 due to increased marketing and expansion costs, which could impact the company's overall financial performance [4]

Core Viewpoint - AutoNation, Inc. has shown resilience in a challenging car-buying environment, achieving a moderate performance with a 6% gain over the past year [1] Company Performance - The company has effectively navigated through difficulties in the automotive market, highlighting the strength of its service-oriented business model [1]

Financial Performance - For the year ended December 31, 2025, AutoNation reported net income of $649.1 million and diluted earnings per share of $17.04, compared to net income of $692.2 million and diluted earnings per share of $16.92 in 2024[162]. - Total revenue for 2025 reached $27,631.4 million, an increase of 3.2% compared to $26,765.4 million in 2024[182]. - Total gross profit for 2025 was $4,948.5 million, reflecting a 3.4% increase from $4,785.4 million in 2024[182]. - Operating income decreased by 5.0% to $1,239.9 million in 2025 from $1,305.5 million in 2024[182]. - SG&A expenses increased to $3,362.2 million in 2025, up from $3,263.9 million in 2024, primarily due to higher compensation and advertising expenses[227]. - The effective income tax rate increased to 26.6% in 2025 from 24.5% in 2024, influenced by non-deductible goodwill impairment charges[234]. Revenue Breakdown - New vehicle sales accounted for 49% of total revenue and 13% of total gross profit, while used vehicle sales accounted for 28% of total revenue and 9% of total gross profit[158]. - New vehicle revenue increased by 3.5% to $13,501.3 million in 2025 from $13,048.2 million in 2024[182]. - Retail used vehicle revenue grew by 2.7% to $7,269.1 million in 2025, while wholesale revenue decreased by 15.3% to $544.9 million[182]. - Parts and service operations contributed 48% of total gross profit despite only comprising 17% of total revenue, indicating a strong margin in this segment[158]. - Parts and service revenue increased to $4,763.0 million, a 6.0% increase from $4,493.3 million in 2024[185]. Inventory and Sales - AutoNation's new vehicle inventory units were approximately 43,800 as of December 31, 2025, compared to 42,600 in 2024, with cumulative write-downs of $1.2 million[169]. - Used vehicle inventory units were approximately 33,100 as of December 31, 2025, down from 34,000 in 2024, with cumulative write-downs of $5.8 million[170]. - Same store retail vehicle unit sales increased by 1.6% to 528,822 units in 2025 compared to 520,623 units in 2024[184]. - Retail new vehicle unit sales in the Domestic segment reached 74,680 in 2025, an increase of 5,412 units or 7.8% from 2024[209]. Profit Margins - Total gross profit increased by 3% in 2025, driven by a 7% increase in parts and service gross profit and an 8% increase in finance and insurance gross profit, while new vehicle gross profit decreased by 14%[163]. - New vehicle gross profit margin fell to 4.9% in 2025 from 5.9% in 2024[183]. - Gross profit per vehicle retailed for 2025 was $2,769, an increase of $157 or 6.0% compared to 2024[203]. - Gross profit as a percentage of revenue for parts and service improved to 48.7% in 2025 from 47.9% in 2024[198]. Impairments and Charges - The company recorded non-cash goodwill impairment charges of $65.3 million related to its Mobile Service reporting unit during the second quarter of 2025[174]. - Franchise rights impairment charges totaled $71.7 million during the second quarter of 2025, with an additional $22.0 million recorded in the fourth quarter[179][181]. Financing and Debt - As of December 31, 2025, the company's long-term debt, net of current maturities, was $3,704.8 million, an increase from $2,613.6 million in 2024[246]. - The leverage ratio as of December 31, 2025, was 2.44x, which is below the maximum requirement of 3.75x[253]. - The company issued $500.0 million of 5.89% Senior Notes due 2035 and $600.0 million of 4.45% Senior Notes due 2029 in 2025[263]. Cash Flow and Investments - The company had net cash provided by operating activities of $111.9 million in 2025, a decrease of $202.8 million compared to $314.7 million in 2024[255]. - Net cash used in investing activities was $687.0 million in 2025, compared to net cash provided of $12.3 million in 2024, primarily due to increased cash used for acquisitions[260]. - The company acquired five stores for an aggregate purchase price of $459.1 million in 2025, while no stores were acquired in 2024[260]. Market Conditions - The U.S. industry new vehicle unit sales reached 16.3 million in 2025, up from 16.0 million in 2024 and 15.6 million in 2023, reflecting a recovery in vehicle production and supply[159]. - The automotive retail industry is sensitive to economic conditions, impacting vehicle sales and gross profit margins[274].

Core Insights - AutoNation, Inc. reported fourth-quarter 2025 adjusted earnings of $5.08 per share, a 2% increase year over year, surpassing the Zacks Consensus Estimate of $4.91. However, revenues of $6.93 billion fell short of the Zacks Consensus Estimate of $7.14 billion and declined from $7.21 billion in the fourth quarter of 2024 [2][11]. Revenue Breakdown - New vehicle revenues decreased by 8.8% year over year to $3.44 billion, missing the estimate of $3.64 billion due to lower sales volume. Retail units sold were 64,841, down 9.2% year over year, and also below the projection of 73,642 units [3][11]. - The average selling price (ASP) per new vehicle unit was $53,073, a 0.4% increase year over year, exceeding the estimate of $49,384. However, gross profit from this segment fell by 26.7% year over year to $155.5 million, missing the estimate of $171.1 million [4][11]. - Retail used-vehicle revenues reached $1.76 billion, surpassing the projection of $1.71 billion, despite a 2.9% year-over-year decline in used vehicle retail units sold to 62,926, which missed the estimate of 66,669 units. The ASP per used vehicle was $27,933, up 3% year over year, exceeding the estimate of $25,669. Gross profit from this segment fell by 9.2% year over year to $90.5 million, missing the estimate of $97.5 million [5][11]. - Wholesale used vehicle revenues dropped by 13.1% to $133.2 million, missing the estimate of $150.5 million. Gross profit increased to $7.3 million from $4.7 million, matching the estimate [6]. - Finance and insurance business revenues were $369.4 million, a 0.9% increase year over year, but below the projection of $370.4 million. Gross profit was also $369.4 million, matching the year-over-year increase but missing the estimate [6]. - Parts and service revenues rose by 6.1% to $1.22 billion, although it missed the estimate of $1.23 billion. Gross profit from this segment increased by 6% year over year to $591.8 million, beating the estimate of $577.2 million [7]. Segment Performance - Domestic segment revenues increased by 1.2% year over year to $1.89 billion, missing the projection of $1.91 billion. The segment's income rose by 19.3% to $79.9 million but fell short of the estimate of $85.2 million [8]. - Import segment revenues decreased by 2.7% year over year to $2.05 billion, missing the forecast of $2.19 billion. The segment's income declined by 11.4% to $106.8 million, lagging behind the estimate of $136.7 million [8]. - Premium Luxury segment sales fell by 8.9% to $2.64 billion, matching the projection. The segmental income declined by 20.3% year over year to $165.4 million, missing the estimate of $196.1 million [9]. Financial Position - As of December 31, 2025, AutoNation's liquidity was $1.8 billion, including $59 million in cash and nearly $1.7 billion available under its revolving credit facility. The company's inventory was valued at $3.4 billion, and non-vehicle debt stood at $3.98 billion. Capital expenditure for the quarter was $86.3 million [12]. - During the quarter, AutoNation repurchased 1.7 million shares for $350 million, with $968 million remaining under its share repurchase program [12].

Core Viewpoint - AutoNation is experiencing strong financial performance, leading to an optimistic price target increase by Wells Fargo analyst Colin Langan from $222 to $230, indicating a potential upside of 6.16% from the current trading price of $216.65 [1][2][5] Financial Performance - For the full year, AutoNation's revenue increased by 3% to $27.6 billion, while adjusted earnings per share (EPS) rose by 16% to $20.22 [3][5] - The company generated over $1 billion in adjusted free cash flow despite a challenging sales environment, showcasing its financial resilience [2][5] - In the fourth quarter, adjusted EPS was $5.08, reflecting a 2% increase year-over-year, although adjusted net income slightly decreased to $186 million from $199 million the previous year [3] Stock Performance - AutoNation's stock is currently priced at $216.65, reflecting an increase of 6.19% or $12.63, with fluctuations between a low of $203.10 and a high of $223.41 on the trading day [4] - Over the past year, the stock has reached a high of $228.92 and a low of $148.33, with a market capitalization of approximately $7.9 billion [4]

Core Insights - AutoNation, Inc. reported fourth-quarter adjusted earnings that surpassed analyst expectations despite a revenue decline, demonstrating the resilience of its diversified operating model [1] - Shares increased by over 9% intra-day following the earnings report [1] Financial Performance - Adjusted earnings per share were $5.08, exceeding the consensus estimate of $4.91 [1] - Revenue for the quarter was $6.9 billion, which was below the expected $7.22 billion and represented a 4% decline from the same period last year [1] Sales Performance - Same-store retail new vehicle unit sales decreased by 10.2% year over year, attributed to tough comparisons from the previous year and elevated sales earlier in 2025 due to tariffs and the expiration of government electric-vehicle incentives [2] After-Sales Business - The company achieved record fourth-quarter gross profit in its After-Sales business, supported by 4% same-store growth [3] - Record quarterly Customer Financial Services profit per unit was reported, highlighting the strength of its diversified revenue streams [3] Expansion and Acquisitions - AutoNation Finance expanded its portfolio to $2.2 billion while improving profitability and funding [4] - The company completed strategic acquisitions in Baltimore, Chicago, and Denver, enhancing its brand mix and geographic footprint [4]

U.S. Stock Market - U.S. stocks traded higher, with the S&P 500 gaining around 1.6% on Friday [1] - The Dow increased by 2.01% to 49,891.59, while the NASDAQ climbed 1.84% to 22,954.50 [1] - Information technology shares rose by 2.5%, whereas communication services stocks fell by 2% [1] AutoNation, Inc. Performance - AutoNation, Inc. shares jumped more than 7% after reporting fourth-quarter results [2] - The company posted adjusted earnings per share of $5.08, a 2% increase year over year, surpassing the analyst consensus estimate of $4.85 [2] - Sales of $6.929 billion fell short of the consensus estimate of $7.200 billion [2] Commodity Market - Oil prices increased by 0.5% to $63.60, while gold rose by 1.6% to $4,969.00 [3] - Silver prices decreased by 0.8% to $76.140, and copper prices rose by 0.7% to $5.8590 [3] European Market - European shares were higher, with the eurozone's STOXX 600 gaining 0.65% [4] - Spain's IBEX 35 Index rose by 1.02%, London's FTSE 100 increased by 0.42%, Germany's DAX gained 0.56%, and France's CAC 40 rose by 0.31% [4] Asian Market - Asian markets closed mostly lower, with Japan's Nikkei falling by 0.88% and China's Shanghai Composite declining by 0.64% [5] - Hong Kong's Hang Seng Index gained 0.14%, while India's BSE Sensex fell by 0.60% [5] Economic Indicators - The U.S. Manheim Used Vehicle Value Index rose by 2.4% month-over-month in January [6] - The University of Michigan's consumer sentiment index increased by 0.9 points to a reading of 57.3 in February, exceeding market estimates of 55 [6]

U.S. Stock Market - U.S. stocks traded higher, with the S&P 500 gaining around 1.6% on Friday [1] - The Dow increased by 2.01% to 49,891.59, while the NASDAQ climbed 1.84% to 22,954.50 [1] - Information technology shares rose by 2.5%, while communication services stocks fell by 2% [1] AutoNation, Inc. - Shares of AutoNation, Inc. jumped more than 7% after posting fourth-quarter results [2] - The company reported adjusted earnings per share of $5.08, a 2% increase year over year, beating the analyst consensus estimate of $4.85 [2] - Sales of $6.929 billion missed the consensus estimate of $7.200 billion [2] Commodity Market - Oil traded up 0.5% to $63.60, while gold increased by 1.6% to $4,969.00 [3] - Silver traded down 0.8% to $76.140, and copper rose 0.7% to $5.8590 [3] European Markets - European shares were higher, with the eurozone's STOXX 600 gaining 0.65% [4] - Spain's IBEX 35 Index rose 1.02%, London's FTSE 100 increased by 0.42%, Germany's DAX gained 0.56%, and France's CAC 40 rose 0.31% [4] Asian Markets - Asian markets closed mostly lower, with Japan's Nikkei falling 0.88% and China's Shanghai Composite declining 0.64% [5] - Hong Kong's Hang Seng Index gained 0.14%, while India's BSE Sensex fell 0.60% [5] Economic Indicators - The U.S. Manheim Used Vehicle Value Index rose 2.4% month-over-month in January [6] - The University of Michigan's consumer sentiment index increased by 0.9 points to 57.3 in February, surpassing market estimates of 55 [6]

Financial Data and Key Metrics Changes - AutoNation reported a solid fourth quarter with a 3% revenue growth and an 8% adjusted net income growth, leading to a 16% increase in adjusted earnings per share [3][4] - Adjusted free cash flow exceeded $1 billion, up approximately 39% from 2025, with a capital deployment of over $1.5 billion, half of which was allocated to share repurchases [3][10] - The balance sheet remained healthy, with year-end leverage largely unchanged from the prior year at 2.44x EBITDA [4][30] Business Line Data and Key Metrics Changes - Same-store unit sales of new vehicles decreased by 10% in Q4, with a significant decline of 60% in battery electric vehicles and 10% in hybrid powertrain vehicles [5][18] - Used vehicle gross profit increased by 5% for the full year, despite a 6% decline in profit per unit for Q4 [7][20] - Customer Financial Services (CFS) unit profitability grew by 8% year-over-year, with record gross profit per unit achieved [8][21] Market Data and Key Metrics Changes - The industry faced tougher sales comparisons in Q4 2025, with a light vehicle SAR of 16.7 million in Q4 2024, impacting sales negatively [4][18] - New vehicle inventory amounted to 45 days of supply, up from 39 days in Q4 2024 [19] - The used vehicle market remains tight, with a focus on acquiring vehicles through internal channels [21] Company Strategy and Development Direction - AutoNation expanded its presence in key markets through acquisitions, including a Ford and Mazda store in Denver and an Audi and Mercedes store in Chicago [11][29] - The company aims to maintain a balanced capital allocation strategy, focusing on both M&A opportunities and share repurchases [30][56] - The strategy includes improving after-sales growth and maintaining strong cash flow to support future investments [34][27] Management's Comments on Operating Environment and Future Outlook - Management expects the market to be slightly down in 2026 compared to 2025, with potential benefits from tax changes and improved used vehicle market conditions [32][34] - There is a focus on maintaining performance in the CFS business while being aware of consumer sensitivity to monthly payments [33][78] - Management is optimistic about the growth trajectory in after-sales and the potential for continued profitability in the AN Finance portfolio [33][43] Other Important Information - Adjusted EPS for Q4 was $5.08, a 2% increase from the previous year, while full-year adjusted EPS was $20.22, up 16% from 2024 [18][10] - The company repurchased $785 million worth of shares, reducing share count by 10% year-over-year [29][30] Q&A Session Summary Question: Regarding the new car business and unit numbers - Management noted a reduction in OEM dealer-facing incentives and a significant drop in EV volume, which contributed to the decline in same-store sales [38][40] Question: On AutoNation Finance's profitability cadence - Management expressed confidence in continued profitability growth, with a starting point of $6 million in Q4 and expectations for improvement throughout 2026 [41][42] Question: Capital spending and M&A market outlook - Management indicated that 2026 capital spending levels would be similar to 2025, with ongoing opportunities in the M&A market [52][54] Question: Trends in hybrid and electric vehicle GPUs - Management observed a decline in hybrid GPUs and flat performance for battery electric vehicles, with expectations for improvement in hybrid margins in 2026 [60][62] Question: Consumer credit availability and affordability pressures - Management acknowledged significant growth in monthly payments and anticipated some relief in charged APR, while emphasizing the importance of affordability in the new car market [77][78]

Financial Data and Key Metrics Changes - The company reported a 3% revenue growth and an 8% adjusted net income growth for the fourth quarter and full year, with adjusted earnings per share (EPS) increasing by 16% [3][12] - Adjusted free cash flow exceeded $1 billion, up approximately 39% from 2024, with a 10% reduction in shares outstanding due to share repurchases [3][10] - The fourth quarter adjusted net income was $186 million, compared to $199 million a year ago, while full-year adjusted net income increased 8% to $757 million [17][18] Business Line Data and Key Metrics Changes - Same-store unit sales of new vehicles decreased by 10% in the fourth quarter, with a significant decline of 60% in battery electric vehicles (BEVs) [5][18] - Used vehicle gross profit increased by 5% for the full year, despite a 6% decline in profit per unit for the fourth quarter [7][20] - Customer Financial Services (CFS) unit profitability grew by 8% year-over-year, with total gross profit for CFS reaching record levels [8][9] Market Data and Key Metrics Changes - The fourth quarter faced tougher sales comparisons due to a surge in sales in Q4 2024, leading to a light vehicle SAAR of 16.7 million [4] - The company expanded its presence in key markets, acquiring several dealerships in Denver, Chicago, and Baltimore [11] - The used vehicle market remains tight, with the company sourcing over 90% of its vehicles through internal channels [21] Company Strategy and Development Direction - The company plans to continue focusing on capital allocation, with a balanced approach between reinvestment in the business and shareholder returns [29][30] - There is an emphasis on maintaining profitability in the CFS business while expanding the AN Finance portfolio [33] - The company aims to optimize vehicle acquisition and improve customer experience in the used vehicle market [20][84] Management's Comments on Operating Environment and Future Outlook - Management expects the market to be slightly down in 2026 compared to 2025, with potential benefits from tax rates and bonus depreciation [32] - The company anticipates stability in new unit profitability and improvements in the used vehicle market year-over-year [32][33] - Affordability pressures are a key concern, with management noting the importance of customer sensitivity to monthly payments [78][79] Other Important Information - The company deployed over $1.5 billion in capital, with half reinvested in the business and half returned to shareholders through share repurchases [29][30] - The balance sheet remains healthy, with leverage largely unchanged from the prior year at 2.44x EBITDA [30] Q&A Session Summary Question: Regarding the new car business and unit numbers - Management noted a reduction in OEM dealer incentives and a significant drop in EV volume as key factors affecting sales performance [39][40] Question: On AutoNation Finance's profitability trajectory - Management expressed confidence in continued profitability growth, with a strong starting point for 2026 [42][43] Question: Capital spending and M&A market outlook - Management indicated that 2026 capital spending levels would be similar to 2025, with ongoing opportunities in the M&A market [52][55] Question: Trends in hybrid and electric vehicle gross profit margins - Management highlighted a significant pullback in OEM incentives and expected stabilization of margins for hybrids, while improvements for BEVs may take longer [60][61] Question: Consumer credit availability and affordability pressures - Management acknowledged rising monthly payments and anticipated some relief in charged APR, emphasizing the need for competitive pricing in after-sales [78][79]