Q2 2026 Earnings Conference Call

business you know at Sonic.

Thanks for all the color and good luck.

Thank you.

Thank you. Our next question is from John Babcock with Barclays. Please proceed with your question.

Hey thanks for taking my questions. I guess just quickly following up on the parts and service side of things, as you're trying to chase some of that next opportunity, do you think there's going to have any impact on margins? And if not, or if it does, I guess, actually, are there opportunities, I guess, for you to kind of take out costs, kind of keep these parts and service margins as strong as they are?

This is Jeff. No, I don't think it's going to have any impact on margin. I think we're going to continue. There's just so much opportunity out there because so much of the car park doesn't come back to a new car dealer because, as David was saying earlier, they really don't understand our pricing. The great technology, the great technicians, we're getting that word out. That's going to drive more customers to our service drives. And I'm not expecting any margin erosion. I'm expecting a lot of gross growth. And I think as long as customers are going to stay in cars longer, which is where all the indications are that that's beginning to happen, then, you know, our fixed operations business should skyrocket. There should be a lot of opportunity there for us to continue to grow and, you know, not have what we saw happening across the industry in the second quarter. I think we'll all adjust to that and continue our normalized growth.

And this is Heath. Just one add there is I do believe there's an opportunity to take out expense and fixed ops. With some of the AI development that we're doing, that's one of our main areas that we think can create efficiency and faster throughput, which will give us the ability to service more, make more gross, and take costs out of it.

I guess next question I had, one of your peers is trialing out virtual F&I. I was just curious, is that something you guys have looked at? Is it something that is interesting? Is it difficult to execute?

Any color on that would be helpful. um we're not looking at it you know or haven't um i i get the idea we're watching them um you know we're when you look at our gpu for fni um it's amongst the one or two you know um in terms of our performance we're very happy with that performance as if there's some you know major cost savings there um you know group one's working on that and and uh we'll we'll let them lead the charge there. There was a group out of Brazil once that does this that we visited with that does all their F&I really out of one office. So maybe there's some opportunity there. It's an idea. It's been around for a little bit. A lot of other things we're focused on and areas where we can take expense out of this business. And we do such a good job in F&I. We don't need a wobble there right now. That's one of our Star Wars, that and our fixed operations business. And what we've been able to show now in terms of our ability to grow the volume, I'll let somebody else be first there. And if there's an opportunity, we can certainly jump on the bandwagon.

Okay. And then just one more for you on the Echo Park side of things, just to fill up the whole cup here. It does sound like you adjusted the cadence of store openings a little bit. How much of that is related to just generally getting the construction work done and getting the site ready versus maybe demand or also your view on inventory build? Any thoughts there to share?

Sure. This is Tim Keene. It's 100% driven by timing of construction. Nothing else is all Thank you.

As a reminder, 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 would 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 start keys. Our next question is from Rob Saltzman with UBS. Please proceed with your question.

Hey team, thanks for the questions today. Your peers have been highlighting difficulties in sourcing used vehicles over the course of Q2. Have you been experiencing similar difficulties like competitiveness within the auction channel? And if so, like how are you working around it? Nice to see the increase in customer source vehicles, but any details around that competitive environment on the sourcing side would be super helpful.

This is Jeff. I don't think it's been any more competitive than it has been the last four or five quarters. I mean, it's super competitive in the auction lanes. You're paying up when you buy cars there. That's why you need to trade for more, buy more cars out of your service drives. We're doing that. Do a better job of sharing inventory between the companies, buying cars out of our buy centers that we're working on across the country. And you're seeing that effort as our percentage of cars off the street are growing and buy cars are growing versus auction cars. But I don't see it being any more competitive. What I do see is a lot more off-lease cars from a BEP perspective are coming back, which is great. And more off-lease cars are going to start coming back as we move out of this year and into next year. So inventory abundance, that's probably too strong of a word. More inventory is going to be available for us as we move forward. And I think that's why you're seeing some that really understand the pre-owned business start to really grow, and you're seeing those double-digit growths or high single-digit growths, because there is more inventory available out there, and we can go get it, and that's making a big difference there.

Guys, I just want to follow up for me. How can you address the parts and service price competitiveness perception? Is there an opportunity in your view for the OEMs to offer lower price placement parts, make your guys' job easier. I know Ford's been out there saying that that's an opportunity for them. So is that something you're working on? How do you change that price competitive misperception in the service space? Thanks.

This is Jeff. 100% we are. And it's not just the manufacturer. I want to make that straight. They need to do a better job in keeping their costs in line from a parts perspective. But also, we as retailers, and in particular, our stores need to do a great job of understanding the pricing that's going on within the marketplace. AI is allowing us to do that, and we're spending a lot of time and energy driving more information into our dealership's hands so that we make great pricing decisions on a daily basis with fixed operations items that we're selling in our stores. So that's an important function and something that we're paying a lot of attention to. Then, as David said earlier, we've got to market that. We have to educate the consumer that, wow, we do have these amazing facilities. They're not rat traps. We've got great technicians. We've got great pricing. We've got manufacturer-certified trained technicians. And why would you not service your car in a dealership? Why do 50% of the customers as an industry, why do they not come back and service their car at a dealership? It's pricing. That's the answer. And we're fixing that. And then now perception. And so you've got to combine those two things. We're doing a much better job of that, but we'll do an even better job as we go forward. We educate our stores. We educate ourselves on how we market that information and do exactly, as you just said, that's changing the perception that we're overpriced. And it isn't a perception. It's a fact. We are overpriced. And we're working on fixing that and driving a lot more market share into our service drive. We do a great job. Our general managers across the industry do a great job giving cars away. But for some reason, the hours that we sell in the service department are like gold bars. And we need to do a much better job of understanding that pricing and then driving more customers into our service drive, maintaining great margin and great gross, and growing the heck out of the customers. Half of the car park out there doesn't use an auto dealership, and we need to bring them back into our stores. It should be 70%, 80%. If you start calculating that math and you look at the upside, it's just infinite. And so, as you can tell, I'm very passionate about this topic. It's something that I'm talking to our team about, you know, ad agnoseum, and something that we're going to take advantage of as we move forward.

Thanks so much, team. Appreciate it.

You bet. this now concludes our question and answer session I would like to turn the floor back over to David Smith for closing comments well thank you all for your time and your questions and we will talk to you next quarter thank you ladies and gentlemen thank you for your participation this does conclude today's teleconference please disconnect your lines and have a wonderful day