Good morning and welcome to the Sonic Automotive Third Quarter 2026 Earnings Conference Call. This conference call is being recorded today, Thursday, October 29, 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'd 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. 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 third quarter 2026 earnings call. As he said, this is David Smith, the company's Chairman and CEO. Joining me on today's call are our President, Jeff Dyke, our CFO, Heath Byrd, our Echo Park Chief Operating Officer, Tim Keen, and our VP of Investor Relations, Danny Wieland. I'd like to begin by thanking our exceptional teammates for their unwavering dedication to providing a world-class guest experience. Our relationships with our teammates, our guests, our manufacturer partners, and lending partners are fundamental to our long-term success, and we are grateful for their ongoing trust and support of Sonic Automotive. Earlier this morning, Sonic Automotive reported third quarter financial results, including all-time record quarterly revenues and all-time record quarterly gross profit of $617.5 million. Reported GAAP EPS for the third quarter was $1.28 per diluted share. Excluding the effect of certain adjustments detailed in our press release this morning, non-GAAP adjusted EPS for the third quarter was $1.30 per diluted share. Beginning now with our franchised dealership segment, Our stores performed well despite difficult year-over-year comparisons as a result of the pull-forward in EV consumer demand during the third quarter of 2025. Reported franchise revenues decreased 3% to $3.3 billion, while same-store revenues decreased 2% year-over-year. Reported franchise dealership segment gross profit decreased 2%, while same-store gross profit decreased 1%. During the quarter, our team focused on optimizing new vehicle GPU while maintaining market share. Third quarter reported new vehicle GPU was $3,048, up 2% year-over-year, and same store new vehicle GPU was $3,000 flat year-over-year. Same store new vehicle unit volume was down 7%, largely due to higher EV exposure within our luxury brands and California stores. We estimate the impact of last year's EV pull forward to have been approximately 2,200 additional new retail units sold in the prior year quarter, which combined with F&I on these vehicles drove a $5 million year-over-year decline in gross profit. Excluding the impact of these EV units, our new retail sales volume would have been flat year-over-year. Third quarter reported used vehicle GPU was $1,500. down 2%, and same-store used vehicle GPU was $1,506, down 3%. Same-store retail used vehicle volume increased 3%, driven by improving used vehicle supply and strategic focus on increasing used vehicle volume throughput as we progress toward our long-term objective of retailing an average of 100 used retail units per dealership per month, representing approximately a 20% Organic volume growth potential from current levels. In the face of industry-wide headwinds, we are proud of our fixed operations performance with reported gross profit increasing 2% to an all-time quarterly record of $265.4 million. On the same store basis, fixed operations gross profit increased 1% driven by a 1% increase in warranty gross profit and flat customer pay gross profit year over year. To combat ongoing consumer affordability challenges, last quarter we launched a value-priced service offering and expanded our service-based marketing strategy. As a result of these efforts, same-store customer pay repair order volume was up 1% year-over-year and up 3% sequentially, and same-store warranty repair order volume was up 4% year-over-year and 4% sequentially. The increased customer traffic provides our stores with key customer touchpoints and opportunities to sell additional products and services at current or future visits, while indicating that our guests are not trading down out of the franchise dealer service lane to visit independent repair shops. In the third quarter, F&I gross profit decreased 3% to $142.6 million on a reported basis, while same-store F&I gross profit was flat year over year. Our team remains focused on maintaining high levels of F&I GPU and ended the quarter at $2,630 on a same-store basis, an increase of 2% year-over-year. Turning now to our Echo Park segment, third quarter revenues increased 14% to $596 million, and segment gross profit increased 8% to a third quarter record of $58.9 million. Echopark retail used vehicle volume growth well outpaced the broader industry, increasing 22% to 19,923 units, reflecting continued consumer demand for our strategic value proposition, improvement in our non-auction sourcing mix, and our teammates' strong execution in delivering an outstanding guest experience. Echopark total gross profit per unit was $2,972, down 12% year-over-year driven by a 15% decrease in F&I gross profit per unit to $2,754, offset partially by a $96 per unit increase in used vehicle front GPU to $218. As discussed on our second quarter earnings call, the reduction in Echo Park F&I gross profit per unit is due in part to a greater mix of battery electric and higher mileage vehicles, resulting in lower warranty penetration rates and F&I profit per contract. We are currently working with our F&I partners and store leaders to enhance our warranty and insurance product offerings for EVs and higher mileage vehicles. While our changes to inventory mix have impacted F&I GPU in the near term, we believe our inventory shift to meet consumer demand is a benefit to sales volume, consumer reach, and future Echo Park growth potential. Echopark adjusted segment income was $2.6 million and adjusted EBITDA was $7.9 million, bringing year-to-date adjusted EBITDA to $40.4 million. For the fourth quarter, we expect adjusted EBITDA to be between $2 and $4 million, including $5 to $7 million in incremental brand marketing expense as we kick off our largest investment ever in building the Echopark brand. Our team is excited to share this brand campaign publicly in the coming weeks. We're also excited to announce that our new Echo Park location in the Orlando, Florida market will open in December. In addition to this new store, we currently plan to open two to four new Echo Park locations in 2027. Turning now to our power sports segment, revenues increased 35% to an all-time quarterly record of $113.7 million. and Gross Profit increased 26% to an all-time quarterly record of $29.3 million. On the same store basis, Power Sports revenues grew 8% while Gross Profit decreased 1% year-over-year. Reported new retail unit volume increased 32% while reported used retail unit volume increased 35%. On the same store basis, Power Sports new retail unit volume increased 6% and used retail unit volume increased 1%. Powersports reported F&I revenue increased 42% year over year to $4.7 million with total F&I per unit up 8% to $1,148. Same store F&I revenue increased 6% while same store F&I per unit increased 2%. Powersports adjusted segment income was $7.9 million down 1% from the prior year period, and adjusted EBITDA increased 4% to $10.5 million. We want to thank our teammates for their hard work in making this year's Sturgis Motorcycle Rally another record success. During the 86th annual rally, our team set a new sales record, selling 1,135 motorcycles, including over 500 new Harley-Davidson motorcycles during the 10-day event. This achievement is a testament to Sonic's strategy of further diversifying our business via a nationwide network of power sports dealerships. As we turn to our consolidated results, our strong operating performance this quarter was partially offset by higher SG&A as a percentage of gross profit, which pressured our bottom line results. Our team is consciously making strategic long-term investments that we expect to drive future profitability and operational efficiency but are not yet leveraging the investment. This includes applying AI across back office functions, inventory management, and fixed operations optimization where we are already seeing benefits. By acting now, we are positioning the company to sustain its momentum, expand long-term profitability, and remain agile in the face of changes in the industry. With that said, we remain within our full-year guidance range for SG&A as a percentage of gross profit despite lower than projected fixed operations growth in the second and third quarters. To support this outlook, we remain focused on implementing certain targeted SG&A initiatives in the near term while continuing to invest in our long-term strategic priorities. Finally, turning to our balance sheet, we ended the quarter with approximately $585 million of total available equity resources, including approximately $201 million of cash and floor plan deposits, Our liquidity position and balance sheet capacity provide us with the flexibility to support our existing businesses, make targeted organic investments, pursue strategic acquisition opportunities, and return capital to stockholders. Given our current trading levels and the $528 million remaining under our share repurchase authorization, we believe share repurchases represent an attractive use of capital, and we are weighing share buybacks against several acquisition opportunities. As we continue to execute our balanced capital allocation strategy, I'm pleased to announce that our board of directors approved a cash dividend of 41 cents per share, payable on January 15, 2027, to shareholders of record as of December 15, 2026. This concludes our opening remarks, and we look forward to answering any questions you have. Thank you.

Thank you. At this time we'll be conducting a question and answer session. If you'd 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. Our first question comes from Alex Perry with Bank of America. Your line is now live.

Hi, thanks for taking our questions here. I just wanted to dig in a little bit on the fixed ops business. So I think that the guide implies that maybe the fourth quarter you see a slight acceleration on same-store gross profit comps. What is driving that? What gets the fixed ops business back to that sort of mid-single-digit percent run rate, and when would you expect that to happen? Thanks.

Hey, Alex. It's Jeff Dyke. I wish I had a crystal ball that could answer the when we expect it to happen. I think the fixed operations business over the last couple of quarters caught all of us a little bit off guard as we projected sort of mid-to-upper single-digit growth. Now that number's in the 3% range. and I probably expected to be around there maybe a little better in the fourth quarter as we're focused on our value pricing and the things that we're doing in our service line to drive up our ASR penetration numbers which range somewhere between 20 and 25 percent but our best brands are running in the 30 to 35 percent range so we've got some upside there in terms of execution and I think we'll do a better job of that in the fourth quarter and in the coming year But to project that we're going to be back into that upper single-digit range in the first quarter I think would be a little bit off. But maybe as we get into the midsummer months and into the back half of next year, we're all scrambling to do a better job with our ASRs and our closing ratios there. Traditionally, we've been in that 20% to 25% range. which is a lot of opportunities, almost a million in the quarter for us. And we'll see how things go, but definitely it's a big focus for the company. It's a big focus for the industry. And would expect a little improvement as we move into the fourth quarter and then certainly continuing that improvement as we move into next year.

Really helpful. And then maybe just to dig in on one part of that, the affordability concerns in the parts and service business Are you taking down price in some of the maintenance level work or even some of the complex work? I guess what initiatives are in place to drive the RO count? And then do you think there is share loss going on to some of the independents or what are you doing to maybe prevent share loss there?

Yeah, there's no question we got too expensive in our service drive and that's our value pricing program and that's what we're doing across all of our stores. We're up 1% in RO count year over year, 3% sequentially. and I expect that to continue to grow as we drive more and more customers back into our stores. I think about 50% of the car park is coming back to a dealer. That's traditional over the last few years. We've got the other 50% going to independents and we need to bring those back to our dealerships. We've got the best facilities, we've got the best technicians, we've got the training, the tools, the equipment, OEM certified parts, certified technicians. There's no reason for them not to come back to us but we're fighting that Image of high-priced service drives, and it's something we're all working on. You'll see our advertising geared towards that. If you look at Sonic Automotive websites right now, you can see our value pricing on certain items that are driving customers back into our stores, driving our account up. And that's a big opportunity for us, and we know it. The industry knows it, and we need to work on it. It's also driving warranty rates up, and that's something we all need to keep a close eye on. as that makes life more expensive for our OEM partners. Parts rates are high and costs are high, and our OEM partners need to do a good job of bringing down cost and expense from a parts perspective. But we all need to get that back in line, and as we do, we'll drive more customers back into our service drive, take share from the independents, and it's just not something that we're going to allow to happen. We'll battle that, and we've got all the assets to battle it.

Perfect. That's very helpful. Best of luck going forward.

Thank you so much. Our next question comes from Jeff Lake with Stevens. Your line is now live.

Good morning. Thanks very much for taking my question. First question, I'm just curious, your new GPU definitely bucked the trend, you know, sequential improvement. Just curious if you could kind of elaborate on why you think you guys are and your peers in Q3.

Because we had a call and coming out of Q2 with some of the FTC stuff that's going on and had a mindset change for our sales managers. And, you know, sometimes gross is a state of mind. It's a motivational call. Yeah, it was a motivational call. And we got our margins where I think they need to be. And, you know, we sell a great product. with great services and amazing CSI for our customers. And we're just not going to give cars away. And the great news is we held our market share. So we were able to contain market share and hold on to our margin, grow our margin a little bit. And I expect that to continue, which is why we're narrowing our range there in terms of our front-end margin number for the year.

You mentioned the FTC. How did that manifest itself into maybe helping or driving the strategy with the New Grosses?

Yeah, I mean, I think that it's making everybody play from the same cheat music. And I don't think everybody's doing it yet. And I think third-party lead providers need to get involved and do the right thing and not allow people who are playing games to be on their websites. But it's making everybody play by the same rules. and so you don't have all these games. And it's going to take some hand slapping going on. I don't think the punishments have been strong enough yet, but it's going to take some hand slapping going on to get everybody's attention that the FTC means business. And as that happens, I think margins will level out and things will get there. We just weren't going to let that play a role in our world. It didn't. We're going to let some of the games going on that were going on out there, you know, change the mindset of our team and the margins that we know we deserve to make. And so, you know, we made that a conscious effort, and it certainly helped in the quarter.

And a quick follow-up on SG&A franchise. SG&A, 75.6% of gross. Just obviously you guys are smaller, so if there's an extraordinary item that hits you, sometimes it hits you guys a little more, given that you're amortizing that over a smaller growth space. But could you elaborate a little bit on what's going on there and what would be the fix?

Yeah, this is Heath. I'll answer that. You're right. It actually is sort of the law of smaller numbers. So basically, Five and a half, six million dollars equals 100 basis points. And if you look at the year over year for Q3, the real drivers were service loaners, gas inflation. So a lot of the things that are related to the customer. And so that is something that we are focusing on. But again, we don't want to sacrifice the customer experience. But that alone was driving almost 100 basis points. And then we've got some incremental spend in the IT world of about $2 million that happened in the quarter that is related to our AI initiative. And we're already seeing dividends from that. We're about eight months into our journey and really amazed at what we can do with that from a standpoint of efficiency. and so we think that's a good investment. It's going to end up in what we think can be a material reduction in SG&A going forward.

Maybe in your spare time you can get Danny out there washing cars and take some SG&A down. We already did that.

That's an AI-proof job there. You know, another interesting thing about this quarter that was a little bit higher than expected is travel, and it's back to Jeff and David's point earlier. You know, we're getting our leaders out there in the stores that are not performing at the level we want, so travel was up a little bit that drove some of that SG&A for this quarter as well.

Well, impressive results nonetheless. Thanks very much for taking my questions, and best of luck in Q4. Thank you.

Thank you. Our next question comes from Rajit Gupta with JP Morgan. Your line is now live.

Great. Thanks for the questions. I wanted to ask on F&I, you know, are you seeing, you know, any kind of pullback or I would say a little more caution from consumers when it comes to this product attach rate? I'm just curious, you know, with just More proliferation and use of AI tools. Are consumers just looking to optimize their spend a bit more, like what kind of warranty they want to attach, et cetera? And the same thing on the service side. Are they optimizing the kind of service work they want to do a little more than they used to? Just curious if there's any feedback around that and have a quick follow-up.

You know, Rajeev, Jeff, we had a little bit of drop-off in our penetration rates coming out of the second quarter and the first part of the third quarter, but it's back up now, 1.8 to 2.0 products per car sold. So, no, I mean, we had a very good F&I month on the franchise side, I think, up just a little bit and a record third quarter in F&I. So, I'm not seeing that. You know, we'd be crazy not to think that that's not going on in our fixed operation service drives. That's definitely part of all of this. There's a lot more information available right at your fingertips and very specific information. And we've got to do a better job of communicating, you know, like I was talking about earlier, the great values that we provide in our service drive. We're beginning to see that. We're driving some more customer pay RO count, which is incredibly important. and I expect that to continue as we move forward. We're going to be just as good or better in using our AI tools that Heath was talking about and some of the investments that we're making. As a matter of fact, we're launching some pricing stuff for fixed operations this next week or the week after that we think are going to help drive more RO count for the store. So all that's AI driven. And so more to come. I think we'll have a lot more story to tell from a pricing perspective, value service, and those things as we move sort of out of this year and into the first and second quarters of next year.

Sorry, I was just going to say that this is David. So we understand the perception versus reality problem that we have. That's an industry-wide thing. We've got to communicate that, as J.D. was saying, to our customers so that they feel, you know, and a number of other people.

If you look at Echo Park, we have a mix issue there. There's more EV mix and there's more older age vehicle mix there. And so getting the right products to market for them is really the key. And we just implemented some new products so that we can actually help that penetration degradation that we have seen at Echo Park because of the mix we're selling now.

Yeah, we have an EV warranty that we've launched and a high mileage warranty that we've launched for Echo Park. Those products are launched this month, and we're already seeing nice penetration on the vehicles, so we expect to be able to curb some of that and grow our front-end margin. We're buying cars better, and so I think all that plays well for Echo Park. And as new car pricing keeps going up and up and up, and the gap widens, which is historically high now between pre-owned and new, that's a grand slam home run for Echo Park. It's just really... are going to be a lot of fun to watch the growth. And I think you're seeing that 22% growth in the third quarter. That growth mix is a lot of fun to watch. And you saw it in the industry. We're seeing it in many brands and in different pockets across the country. And I think that's going to continue to happen as we move into next year.

Understood. That's all very helpful, Collar. I just wanted to follow up on capital allocation. Clearly, the backdrop looks a little choppy, you know, there is some uncertainty in parts and service, you know, the recovery trajectory there, you know, some choppiness in F&I and just like a pretty slattish, I would say backdrop. You know, I'm curious, like, how are you weighing any capital allocation, be it even buyback or M&A against that backdrop? You know, would you prefer to wait for a few more quarters of visibility before deploying capital or are you just finding attractive opportunities, at least on the M&A side, that might warrant you to just deploy that sooner. Thanks.

Yeah, thank you. This is David. Well, as you know, the acquisition opportunities, as we evaluate those, and you look at the growth of Sonic over the last nearly 30 years, those opportunities to acquire some fantastic stores are not, they just don't come around You know, if you, you know, every quarter or, you know, you've got to make, you know, we've got to make long-term investment decisions, not quarter to quarter. So I think that's the biggest thing. So as we look at potential acquisition opportunities, that's the mindset that we're going to have. And so, and then, as we said, you know, opportunistically, we've bought back, I think, around 11 million or so shares over the last several years. So we'll look at all of it. But I think that as an investor in our company, You've got to think long-term, and so I think that's the main focus that we have.

Understood. Great. Thanks for all the color, and good luck.

Thank you. Thank you. Our next question comes from Brett Jordan with Jefferies. Your line is now live.

Hey, good morning, guys. This is Patrick Buckley on for Brett. Thanks for taking our questions.

Hi, Patrick.

On parts and service, you called out an increased technician head count in the slides. Are there any metrics you can share on that front? Or I guess, how much do you think is left to close the gap to full capacity levels?

Oh, gosh. We could hire a couple of hundred technicians. We've got the capacity in the stores. That's something that we're focused on. You don't want to hire them too fast, right? Because bringing in, getting into our culture, our process, the way we do things, We've got a lot of our stores now exploring Sunday service, which many of our shops over the years have been closed on Sunday. Our Toyota brand has really been exploring that. So we've got capacity. And we could bring another 100, 150 techs on tomorrow, no question. So there's plenty of room there. And we're going to need them as we drive our value service proposition. and bring more and more customers in the car park back into our service drives. And again, there's 50% of the customer. It depends on the brand. Some brands higher than others. But on average, about 50% of the car park does not come back to a dealership post two or three years to service their vehicle. And we're working on bringing those customers back in and providing them the experience that they're only going to get at a franchise dealership.

Great, got it. And then on the power sports side, how is demand there held up compared to light vehicles? Any pullback or signs of trade downs due to affordability issues, or has that more lifestyle type of purchase held up a little better?

It's held up great. That group's on fire. We've had so much fun watching them grow that business and put our technology, our processes, and disciplines into the business. It's just great. Now, we gobbled up a lot of stores. and, you know, we're running and operating and getting them up to speed. And then, you know, once we get that breath and that handle, we'll go and gobble up some more. But it's fun to watch them. We brag on them every day around here how well that leadership team is doing and those stores are performing. And there's been no sign of slowdown there.

And there's so much opportunity in the power sports industry. We're, you know, learning more and more about it. And if you look at our, you know, PowerSports gross profit in our front gross. If you applied that across the board to our entire company, the numbers would be really outstanding. It would be really outstanding. So there's a lot of opportunity.

Great. That's all for us. Thanks, guys.

Thank you, sir.

Thank you.

Our next question comes from Danella Hagen with Morgan Stanley. Your line is now live.

Great. Thank you for taking the question here. My first one's on Echo Park. You mentioned you're planning to enter Orlando, launching a new brand campaign. How should we be thinking about the economics of this next phase of expansion? Are these new markets achieving the same volume and profitability as your established locations? And what milestones should we be tracking to assess returns on incremental investment?

One of the things, this is David, that I would say is that I think our team is getting a lot better about the investment that we're making in additional Storrs, and we're being creative on getting the cost down. I think that's a big part of it. I think there's a lot of capacity in our existing Echo Park stores for growth, and we're, you know, we've found that in markets where people, where the consumers are aware of Echo Park, we, you know, have tremendous volume. So with our new, you know, we wish we could tell you about it today, but we'll be announcing some things coming soon, but that I think will dramatically increase the awareness even in our existing markets and the new markets we're coming to of the Echo Park brand that should have a huge impact on the business.

This is Jeff. That capacity is not another 50 cars a store a month. It's more like 200, 300 cars a store a month that we have the capacity to do in our existing footprint. And, yeah, we expect Orlando to get started. We used an old Cadillac property that we had there. So we got into that facility nice and absolutely we expected to get up to speed really quick. Orlando is a fantastic pre-owned market and we've got a lot of experience in that market. So we'll get in there and do a great job and sell a bunch of cars. And then we're going to have some really exciting stuff, not only from a spokesperson perspective, but we've got some new things coming for Echo Park that we're very excited about. that hopefully we'll be able to talk about in the first quarter that will hopefully enhance and expand the speed and efficiency in which we grow Echo Park. So we've got a lot of neat things coming. We feel like we've got our arms around the brand. We've got it headed in the right direction. And so we've called out. We're going to have some more spend this quarter. You expect that, and you can put that into your models, and that's not going to go away in the first quarter. We're going to continue to really invest in this brand. We've made it through the difficult times, and we've got our arms around it, and we're getting ready to push on the accelerator, and let's see what Echo Park can do in this fun used car economy.

And this is Heath. I'll add on that brand spend. As Jeff mentioned, you're going to see that spend continuing, and the benefit of that in getting that... to show through our financials. It's looking at the end of the next year. You've got to give the brand time to where everyone is aware of it. And we've said over and over, we're objectively the lowest price of anyone in the market. We're objectively the best customer experience for as good or better product of car. The one missing part is awareness. And so we're excited about what this brand can do for us.

We guarantee you'll know the spokesperson.

Yes, and just taking the opportunity to thank and congratulate our team again on achieving the number one guest experience in our industry. They just recently announced by reputation.com for our Echo Park automotive team. It's just outstanding. They're repeatedly ranking number one in the industry.

That's great. I appreciate the answer and looking forward to that update in the first quarter. My second question was on SG&A. You talked about how you're implementing some initiatives, even with some of the slower fixed outlook for the fourth quarter. Can you speak a little bit more? What are some examples of things you've implemented here, whether it's AI or otherwise, to improve the operating leverage in the business?

One is we're going to reduce the level of loaner cars that we have in this organization, and that started last month. But it takes a little bit of time for that to all flow through. And it's a big expense in the company. If you look in detail, it's $3.5 million, $4 million a month in the company. So we're going to take a big chunk there while still keeping up our great guest experience, just being more efficient and effective with our loaner car process. It's going to take time, like I said, for that to flow through, maybe through the fourth quarter. And then you'll see those reductions showing up in Q1. as we get some of that inventory sold. And then we're making other adjustments, whether it's personnel from an AI perspective, compensation plans to be a little more variable than maybe some are. All the things that you would typically focus on as you move through an environment like this where a few million dollars makes a huge difference You know, especially from the size of our company, you know, we'll continue to focus on that and we'll bring our SG&A down in line. But it's not going to be material in the fourth quarter. More along the lines, the changes that we're making and the adjustments that we're making today are going to show up in Q1. And we'll let that happen and hopefully continue the great record-setting gross and volume that we're having along with maintaining our margin. You're working on both sides of the table, and we'll bring those two things together and bring our SG&A as a percentage gross down.

Yeah, and from an AI perspective, as Jeff mentioned earlier, we're rolling out those initiatives starting in the fourth quarter. A lot of them are related to increased gross, so we're looking at the fixed pricing, we're looking at inventory pricing as some of the big things we're rolling out in the field. Currently, we have multiple automations in the back office, and the savings to date on the bots and the AI that we're implementing in the back office is about $2.6 million year-to-date, and we've just begun that rollout. So we expect incremental savings from that as well.

Great. Thank you, team.

Thank you. Next question comes from Rob Salzman with UBS. Your line is now live.

Hey, team. Thanks for taking the time. Just firstly, I know it's a little early and you need some helpful thoughts on the fixed op side for 27, but I was hoping you could maybe provide some additional high-level thoughts on the puts and takes for the franchise segment as we head into next year and just how you're thinking about the business overall there.

Well, we're not going to come out and say 1% to 3% growth. I just can't do it. That's not going to happen. You know, unfortunately, you know, that 3% number is probably going to, that's where we're going to probably be around maybe hopefully a little better as we move through the quarter. But, you know, sort of somewhere in that mid-single digit range probably is, you know, where we'll be. Maybe we push our stores from a budgeting perspective into the 5% to 7% range, maybe 8%, depending on what I can How far I can push them, but it's certainly our expectation is not to be growing in the 1% to 3% range.

And I'll add, you know, again, back on the AI thing, from my perspective, the fixed stops is the biggest opportunity for AI to help with throughput efficiency, which obviously is going to have an impact on gross and SG&A.

Our ASR process, if we can increase our closing percentage and drive more customers in, we've got ample opportunity with the customers that we have already in our service drive. But we're going to drive through value pricing. We know we can do that, and we're going to drive more customers through. We're going to focus our ad dollars in and around the value for the customer in our service drives. That's something that we here at Sonic Automotive and the industry, you know, needs to work on. And you'll hear, I'm suspecting you'll hear it from the industry. You're certainly going to hear it from us in our marketing efforts as we move through 27.

Thanks, Stephen. Just one follow-up. You have that goal in the franchise dealerships to get 100 retail used vehicles per store per month. Can you just walk us through the path to getting into that 20% improvement in retail used vehicle volume throughput per store? particularly in what remains a difficult used vehicle sourcing environment?

Yeah, we walk through it every week. You know, it wasn't that long ago we were at 110, 107 used vehicles per store per month. And the gap between new car pricing and pre-owned pricing and as leasing comes back and more availability of product comes back, to walk to 100 for us is easy. We've just got to fill a couple of holes and we're going to get that number. We should be beyond that. and I feel like I'm talking on our weekly huddle call to all of our general managers. And we've got plenty of brands that are well beyond that. Honda, Toyota, Mercedes, BMW, all of them well above the century mark. And we'll get the other ones there too and accomplish that goal as we come up into this calendar year.

Thanks, Dean. Appreciate the time.

Thank you. Thank you.

Our next question comes from John Babcock with Barclays Bank. Your line is now live.

Hey guys, this is Aaron on for John. Just a quick question on the Echo. Hey guys, just a quick question on the Echo Park performance. So I know that competition has intensified a bit on the used side. So just, you know, kind of curious, you know, especially with the tightness in the market, how you're positioning there and then how you're enhancing the digital experience?

I mean, we've got such a huge upside, obviously. There's two or three of us sitting out there that are single-only used car dealers, and we're growing. We grew 22% last quarter. Plenty of opportunity in front of us. It doesn't mean we're not going to have some quarters lower, some quarters higher, but the overall trend. And you see what we're doing. We're getting ready to make a huge all-time investment in Echo Park. to bring awareness about us. Our awareness is really low as a percentage, maybe 13% in the markets that we do business in. And so that's been one of the big boat anchors for us. We're fixing that. We're getting ready to tell the world who we are. And we want people to come into our stores and experience what Echo Park is all about. And we are working on a digital retail solution for Echo Park, among other things within our business segment on the franchise side. And that digital retail solution is something that we hope to begin to launch pieces of it as we move into next year, probably in the summertime. And that's a sneak peek. We'll give you a lot more data on that and launch dates for our digital retail solution as we move into the second quarter. and we'll get you guys a lot more up to speed on where but we've been making an investment in digital retail for the last year and hopefully we'll have something to launch as we move into the back half of next year.

And this is Heath just to add from an operational perspective the keys to our profitability are that mix where we're acquiring vehicles and we continue to increase the non-auction vehicles, and that's a huge impact on our profitability. So we're going to continue to find ways to increase that. And then secondly, finding the F&I products that fit the mix. And, you know, those are the two operational things that are really going to be a focus going into the fourth quarter into 2027.

And as we launch in November, our brand spend, listen to the messaging. That'll kind of give you a path on, you know, where everything is headed.

Got it. Super helpful. And then just curious what you're seeing on the brand side. I know there's some concern for some of the domestics heading into the quarter. So just anything you're seeing there, especially as we head into luxury sales season?

No, I mean, quite to the contrary. I'm very excited about it. I probably spend as much time as anybody with our manufacturers and going around and looking at the new products that are being developed, how excited they are. about the future and what's going to happen over the next few years. The products that are coming are amazing. I don't care which, BMW, Ford, Lexus, we've seen it all. Land Rover is just going to be amazing. Audi's announcement was just huge. Congratulations to them on manufacturing cars in the U.S. and just drove the all-new Q9. It's an amazing vehicle and so I couldn't be more excited about what the manufacturers are doing, the products that they're developing, the technology that's in the products. It's like now we're starting to drive our iPhones, right? And so a lot of fun, lots of horsepower. And then the power plants are great too, whether it's an ICE vehicle or battery electric or hybrid. They're coming with just amazing product, amazing technology. And it's you know it's pushing the prices up which is fine let it do that because it drives a used car business which is also great for us it's kind of playing into our hand and I think we're going to have a great holiday selling season you know December is always just amazing around this company and there's no reason for me to believe so over 20 some odd years here there's no reason to believe that this December would be any different and so looking forward to to getting there next week and rocking and rolling, getting October done. And it's going to be a great fourth quarter.

Got it. Thank you so much.

Thank you.

Our next question comes from Chris Pierce with Needham & Company. Your line is now live.

Hey, good morning. Can you just kind of walk me through, I think the midpoint of the original Echo Park Guide was $30 million in February, and I just want to kind of understand what's kind of surprised you, what's kind of, how we've kind of landed where we're landing now. I think units maybe are ahead, but F&I is, you know, worse on the EV mix, so just kind of And then how do we think about it into next year as there's more EVs coming off lease? And I know you've got new products, but, like, you know, what if you have more EVs but lower a tax? Like, how do you kind of put those pieces together?

Well, I think, like we said earlier, you know, finding the right products for the EV and the higher age vehicles is a key, and we're working with our partners to do that. So that's going to be a key going into the next year.

Yeah, and I also think while they're still upside on the F&I, especially with the EVs, there's even more upside on the front end side as we continue to procure cars non-auction. So we're looking at it more round package than just one or the other.

And we also think that the branding is going to help us on the front end side. There's going to be brand equity that we can get with that brand.

and the other thing that you need to think about is, you know, all those third party service departments out there, you know, don't think that Echo Park might not jump into the water and have some fixed operations opportunities as well with the great experience that we have and that we can provide. I'm telling you, there are a lot of things coming with this brand because of the experience that we provide and as we launch this brand, a lot of fun things that we're going to do with it and and more news on that as we move in the next year.

You know, a good example is in the Atlanta market, you know, since we did the naming rights deal at Echo Park Speedway and have seen the impact that's made on even if you just look at our Atlanta store, right? I mean, the impact has been incredible.

The volume's more than doubled in Atlanta from that signal event and it just shows the lack of awareness that we had prior.

So as customers find out about us, that will... absolutely help our grosses and volume. So it's going to be exciting to see. We're all sitting here smiling because we want to tell you some more of the things we're working on, but we'll have some announcements coming soon.

They just put a muzzle on me.

And like you said, the increase of inventory coming back just plays into our hand for Echo Park. Each year that that inventory availability increases is just going to help us grow.

Okay, perfect. And then one on the news side, is it correct that Porsche has been sort of an underpenetrated OEM for you guys and the Walnut Creek acquisition sort of is there, and as the brand sort of maybe goes through some challenges, that's something we should think about as an opportunity where some other luxury OEMs you maybe don't have as much of like acquisition opportunities on the table?

I'm not sure if I used, could you say the question again, please?

Oh, sure. Is Porsche sort of an underrepresented brand within the Sonic umbrella versus like BMW and Mercedes where it's harder to sort of find stores to acquire given they're already like larger geographic footprint or is that sort of not the right way to think about it?

The right way to think about it is Porsche is an underserved brand in every retailer out there. We take as many Porsche points as we can get. The acquisition that we were fortunate enough to make in Northern California was is the first one we've made in, gosh, 15 years or something. And we'd buy more. You've got to be green to buy. We are, and we'd buy more tomorrow as they come up. It's an amazing, amazing brand. And as we build out our luxury footprint across this country, it's a desire to grow with all of our luxury brands. And so... The way I look at it is we're underserved in all of them, and there's plenty of opportunity.

I mean, as I mentioned earlier, long-term investments. We know that our Porsche manufacturer partners, that the Porsche brand is a fantastic long-term investment. So we are very excited about it. And as J.D. said, we get some more opportunities to add more Porsche stores. And there's many other manufacturers that we, you know, Very eager to receive those calls, so we were excited when we were able to do that deal in Walnut Creek. So far, it's been fantastic. The performance has been amazing so far.

When you think about Audi, they've had a rough run here, but we haven't blinked on that brand. We know they're going to be strong, and now, look, they're coming with a huge investment in Georgia, and that's going to help with the tariff situation, and so you can't take a

Short-term look on these great luxury brands.

They've been around forever, and they're going to be around forever, and we're just excited to be a part of their growth plan.

Thank you, and good luck.

Thank you. Thank you.

As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment while we poll for questions. Our next question comes from Michael Ward with Citigroup. Your line is now live.

Thanks very much. Good morning, everyone. I appreciate it. These motivational discussions you had with your managers, did that result in lost sales, or was it brand-specific? Were there people discounting too much? What was the reasoning behind that, and was there a conscious effort?

I think we mentioned earlier that market share is something that our team, we really focus on as much as our I think it's a fantastic metric that we still hit our market share numbers while also increasing our gross profit.

If you notice coming out of the second quarter, Michael, everybody's margins were dropping off $150, $200, $300 a car, and we just weren't going to allow it. It was happening across the board. If you keep letting that happen, You're going to keep giving margins. It's going to keep going down further and further. So we drew a line in the sand and made some adjustments to compensation plans across multiple positions. And we've all been together for a long time. We have very little turnover in this company. And we called upon our team to step up and to hold their margin, and they did. And they're doing it in October. That's not change. It wasn't a two-month whim. We just saw a trend and one that really bothered me, Jeff Dyke, personally. I just couldn't understand why we would allow that to happen because that's what's going on in the rest of the world. We have such a great experience in our stores and we just made it up in our mind that that wasn't going to happen and it's not going to happen. and our team.

It was not brand specific. Absolutely not.

It was across the board. I will tell you there were some brands that did a better job than others. Our Honda brand just really did an amazing job. And I think our brand structure and the way we're structured as an organization versus a regional structure really helped because we can call on those brand leaders to get in there and get that job done. But motivation is a good way to say it. It was a good motivational moment in our company, and we got the message across, and it's paying off for us.

Mike, this is Danny. On the tradeoff of volume versus GPU, we were essentially flat in new volume from 2Q to 3Q. And if you take out the 2,200 incremental EVs we sold last year, we were actually up year over year on the same store basis, X EV. So we've done a really good job of maintaining the market share and the volume piece of it But just really looking at optimizing how do we price relative market, how quickly do we turn inventory, and what can that do to drive both the volume and the GPU support?

Yeah, and it sounds like it could be the new world order just because if we're dealing with tighter inventories, and particularly when you're getting to the end of a model year, and you don't have that excess fluff to get rid of. So it sounds like it's a new world order. It is a new world order.

We have the right day supply. You know, the FTC deal really kind of was a disruption in the world, you know, and made everybody, a lot of the competitive sets, start doing the right thing. Now, not everybody's doing the right thing. I want to be clear on that. But we're not going to let our stores, you know, compete against that, you know, and drop margins just because. We're going to do a great job and hold ourselves accountable and make the margin that we deserve to make. and we're going to count on the FTC to do their job and hold people who aren't doing the right thing accountable and that's an important piece of this puzzle so that we put that behind us and we once and for all get rid of the transparent pricing discussion with our industry and just move on. It's time for that to happen. Couldn't be more supportive of it and the whole world needs to play ball the same way but we're not giving our margin up because of that. That's just not happening.

Thank you very much. Really appreciate it. Got it.

We have reached the end of the question and answer session. I'd now like to turn the call back over to David Smith for closing comments.

Thank you, sir. Thank you, everyone. We will speak to you next quarter.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.