What are the drivers for the expected significant improvement in SG&A to 66%-67% by year-end?

Mike Manley attributed the improvement to enhanced gross profit, various productivity initiatives (including AI application), more disciplined advertising spend (which was heavier in H1), and recent portfolio actions. “I think what you'll see is the drivers, Rajat, is improved gross profit, a number of productivity initiatives that we have, including those involving the application of we've got some programs around discipline around advertising that we've invested more heavily in, in the first half.”

Is the stable $4,500 per unit variable gross profit the new normal, and what drives the stability, especially with strong F&I?

Mike Manley and Tom Szlosek emphasized focusing on total unit profitability, which has been stable for four quarters, rather than individual PVRs. They highlighted the strong CFS performance, particularly in extended service contracts, which also seeds future aftersales customers. The growth of AutoNation Finance, while creating a short-term drag on CFS profit, contributes to long-term profitability. “But for us, it's a total economic equation, including the products and services that we offer from a CFS perspective, and we think our trajectory is very strong.”

How sustainable is the increase in used vehicle GPUs, and are there market factors that could lead to a pullback?

Mike Manley stated that GPU improvement comes from multiple sources beyond average transaction price, including quicker vehicle turns, good control over reconditioning, and favorable mix from internal sourcing (trade-ins, off-lease). He emphasized focusing on return on invested capital in used cars, which is better for higher-priced units. He believes the key drivers are under control and the performance is sustainable. “So it's coming from multiple areas faster to market, good control over reconditioning, reasonable turn rates, so depreciation is not impacting it, some mix. And therefore, I think as a result of that, it's sustainable.”

AutoNation (AN) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Consumer Discretionary· Jul 31, 2026

Source: earnings call transcript

Executive summary

AutoNation Q2 FY26 — Strong Aftersales and Capital Allocation Drive EPS Growth

AutoNation delivered its sixth consecutive quarter of adjusted EPS growth, driven by robust aftersales performance, particularly in customer pay and wholesale parts, and disciplined capital allocation. Despite headwinds in new vehicle sales from BEV declines and a tight used vehicle supply for lower-priced units, the company maintained strong unit profitability and advanced its captive finance arm. Management expects continued EPS growth in the second half, supported by ongoing operational execution and shareholder-focused capital deployment.

Highlights

Adjusted EPS of $5.56, up from $5.46 a year ago, marking the sixth consecutive quarter of year-over-year growth.
Aftersales gross profit increased 7% in total and 4% on a same-store basis, reaching a record $607 million.
Wholesale parts revenue increased 16% during the quarter, driven by commercial wins and share gains.
Adjusted free cash flow was $180 million in the quarter and $439 million year-to-date, an 11% increase year-over-year.
Deployed $317 million on attractive M&A and $457 million on share repurchases in the first half.

Concerns

New unit sales were down 4% year-over-year, primarily due to a decline of over 30% in BEV sales.
SG&A as a percentage of gross profit was 68.2%, up from 66.2% a year ago, though showing a 160 bps sequential improvement.
Used vehicle volume was slightly impacted by a lower mix of vehicles priced below $20,000.

Guidance & targets

Category	Target	Timeline	Confidence
SG&A as a percentage of gross profit	66% to 67% target range medium materiality	FY26	High
Capital expenditures	approximately $325 million medium materiality	FY26	High
Aftersales customer pay gross profit growth	mid-single-digit growth high materiality	Ongoing	High
Adjusted EPS growth	adjusted EPS growth high materiality	H2 FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Aftersales Aftersales delivered record gross profit, reflecting continued growth in a durable, recurring, and high-margin part of the business. The decline in gross margin to 48.1% from 49% in the prior quarter was primarily related to the higher mix of lower-margin wholesale parts. Customer pay and wholesale parts drove revenue growth, offsetting cyclically lower internal repair orders. Gross margin: 48.1%Customer pay revenue growth: 7% YoYWholesale parts revenue growth: 16% YoYCustomer pay repair orders: up 5%Warranty repair orders: up 8%Franchise technician headcount growth: >2% YoY	$1.26 billion	3.3%	—	$607 million

AN operating KPIs by quarter

AN operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Mar 2026 Q1 FY26	This call Jun 2026 Q2 FY26	Change vs prior quarter
Loan originations AutoNation Finance	~$460M During the quarter, we originated approximately $460 million in loans and received approximately $213 million in customer repayments. Source: earnings call transcript	$485M Originations were $485 million for the quarter and AutoNation finance penetration was 11% of our total vehicle sales and 18% of our vehicle sales financed during the quarter. Source: earnings call transcript	—

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Deals & partnerships

Toyota of Nuna Georgia Acquisition of a Toyota dealership in the Atlanta area.

Adds additional scale to a market where AutoNation already has meaningful presence.

Three premium luxury stores (unnamed) Acquisition of three premium luxury stores in the San Francisco Bay Area.

Adds additional scale to a market where AutoNation already has meaningful presence.

Risks & headwinds

Lower mix of used vehicles priced below $20,000 Q2 FY26, ongoing

Used vehicle volume was slightly impacted

Mitigation:Continue to work to improve accessibility to vehicles priced in this range.

Volume comparison headwinds from 2025 tariff and EV credits Q2 FY26, expected to lap in H2 FY26

New unit sales were lower versus a year ago; BEV sales were down by more than 30% year-over-year.

Mitigation:Expects these headwinds to lap in the second half of the year.

Cyclically lower internal repair orders in aftersales Q2 FY26, temporary

Internal pay was moderately down; internal gross profit was down.

Mitigation:Offset by strong customer pay and wholesale parts growth; viewed as temporary due to mix shift in used vehicle stocking.

What to watch in Q3 FY26

SG&A as percentage of gross profit

by year-end

Current 68.2%

Target 66% to 67%

Why it matters

Reaching this target is a key driver for operating leverage and profitability improvement.

We expect SG&A as a percentage of profit of gross profit to reach our 66% to 67% target range on a run rate basis by the end of the year.

Find out whether AN delivers this. Inve re-checks your case every morning.

Q&A highlights

Why is aftersales gross profit growth decelerating despite strong customer pay, and when can it return to mid-single-digit growth?

Mike Manley explained that the deceleration is due to a mix shift in internal pay (less reconditioning for higher-priced used cars) and warranty mix (higher volume, lower content per RO), which are temporary. He highlighted strong underlying customer pay performance and wholesale parts growth (16% revenue, 9% gross profit) as indicators of health and market share gains.

“I would view any temporary drop in terms of internal pay and warranty as a point in time, nothing structural in there, and you should look at the underlying performance with the penetration in the park.”

asked by Rajat Gupta · answered by Michael Manley

2 min read 6 chapters

Detailed narrative

Aftersales Performance and Strategy

Aftersales delivered record gross profit, with customer pay revenue up 7% year-over-year and wholesale parts up 16%. The company is focused on improving penetration in the market, especially for older vehicles, by packaging value and communicating competitive offerings against non-franchise players.

Investments in technology and technician workforce development are key to sustaining mid-single-digit growth in customer pay aftersales, offsetting temporary declines in internal and warranty repair orders due to mix shifts.

Customer Financial Services and AutoNation Finance

CFS per vehicle profitability increased 3% to $2,799, even with a 2% drag from increased AutoNation Finance loan originations. AutoNation Finance generated $11 million profit in Q2, with its portfolio growing 52% to $2.67 billion. The company emphasizes the long-term profitability of its captive finance arm and its contribution to overall unit economics, with compelling offerings driving healthy customer takeup and attractive returns on equity.

Vehicle Sales Dynamics

New vehicle unit sales were down 4% year-over-year, largely due to a 30%+ decline in BEV sales, but market share remained consistent. Used vehicle sales saw strength in units priced above $40,000, which have higher profitability, though supply for lower-priced units remains tight. The company expects off-lease supply to accelerate meaningfully in the second half, which should improve inventory mix and support used vehicle profitability.

Capital Allocation and Shareholder Returns

AutoNation generated $439 million in adjusted free cash flow in the first half, with a 125% conversion rate. The company deployed $900 million of capital, including $457 million in share repurchases and $317 million for M&A. Recent acquisitions of a Toyota dealership and three premium luxury stores add $600 million in annual revenue and enhance scale and density in existing markets, reflecting a disciplined approach to maximizing shareholder value.

SG&A Management and Efficiency

SG&A as a percentage of gross profit improved sequentially by 160 basis points to 68.2% in Q2. Management expects to reach its target range of 66% to 67% by year-end, driven by productivity initiatives, more disciplined advertising spend (which was heavier in the first half), and recent portfolio actions. These efforts aim to enhance operating leverage and overall profitability.

Customer Lifetime Value Focus

The company emphasizes a focus on customer lifetime value, balancing acquisition costs with the ability to provide a range of products and services. This approach considers the long-term relationship and recurring revenue streams from aftersales and CFS, rather than solely short-term unit profitability. This strategy aims to build customer loyalty and maximize value over the entire customer journey.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.