SONIC AUTOMOTIVE INC (SAH)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes thereto, as well as the consolidated financial statements and related notes thereto, “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2025.

Unless otherwise noted, we present the discussion in this Management’s Discussion and Analysis of Financial Condition and Results of Operations on a consolidated basis. To the extent that we believe a discussion of the differences among reportable segments will enhance a reader’s understanding of our financial condition, cash flows and other changes in financial condition and results of operations, the differences are discussed separately. Certain amounts and percentages may not compute due to rounding.

Unless otherwise noted, all discussions of increases or decreases are for the three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025. The following discussion of Franchised Dealerships Segment new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net is on a same store basis, except where otherwise noted. All currently operating franchised dealership stores are included within the same store group as of the first full month following the first anniversary of the store’s opening or acquisition. The following discussion of EchoPark Segment used vehicles, wholesale vehicles, and finance, insurance and other, net is on a same market basis, except where otherwise noted. All currently operating EchoPark stores in a local geographic market are included within the same market group as of the first full month following the first anniversary of the market’s opening or acquisition. The following discussion of Powersports Segment new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net is on a same store basis, except where otherwise noted. All currently operating stores in the Powersports Segment are included within the same store group as of the first full month following the first anniversary of the store’s opening or acquisition.

Overview

We are one of the largest automotive retailers in the U.S. (as measured by reported total revenue). As a result of the way we manage our business, we had three reportable segments as of June 30, 2026: (1) the Franchised Dealerships Segment; (2) the EchoPark Segment; and (3) the Powersports Segment. For management and operational reporting purposes, we group certain businesses together that share management and inventory (principally used vehicles) into “stores.” As of June 30, 2026, we operated 107 stores in the Franchised Dealerships Segment, 18 stores in the EchoPark Segment and 20 stores in the Powersports Segment. The Franchised Dealerships Segment consists of 127 new vehicle franchises (representing 24 different brands of cars and light trucks) and 15 collision repair centers in 17 states. The EchoPark Segment consists of 18 stores in 10 states. The Powersports Segment consists of 46 franchises at 20 locations (16 full-service dealerships and four authorized retail outlets) in five states.

The Franchised Dealerships Segment provides comprehensive sales and services, including (1) sales of both new and used cars and light trucks; (2) sales of replacement parts and performance of vehicle maintenance, manufacturer warranty repairs, and paint and collision repair services (collectively, “Fixed Operations”); and (3) arrangement of third-party financing, extended warranties, service contracts, insurance and other aftermarket products (collectively, “F&I”) for our guests. The EchoPark Segment sells used cars and light trucks and arranges third-party F&I product sales for our guests in pre-owned vehicle specialty retail locations and does not offer customer-facing Fixed Operations services. The Powersports Segment offers guests: (1) sales of both new and used powersports vehicles (such as motorcycles, personal watercraft and all-terrain vehicles); (2) Fixed Operations activities; and (3) F&I services. All three segments generally operate independently of one another with the exception of certain shared back-office functions and corporate overhead costs.

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SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Summary

Retail Automotive Industry Performance

The U.S. retail automotive industry’s total new vehicle (retail and fleet combined) seasonally adjusted annual rate of unit sales volume (the “total new vehicle SAAR”) increased 2% and decreased 2% for the three and six months ended June 30, 2026, respectively, to approximately 16.3 million and 15.9 million vehicles, respectively, compared to approximately 16.0 million and 16.3 million vehicles for the three and six months ended June 30, 2025, respectively, according to the Power Information Network (“PIN”) from J.D. Power. We currently estimate the 2026 new vehicle industry volume will be between 15.5 million vehicles (a decrease of 5% compared to 2025) and 16.0 million vehicles (a decrease of 2% compared to 2025). The effects of tariffs and trade policies, interest rates, changes in consumer confidence, availability of consumer financing, manufacturer inventory production levels, incentive levels from automotive manufacturers or shifts in such levels, or timing of consumer demand in response to economic conditions, geopolitical disruptions, energy prices, natural disasters or other unforeseen circumstances could cause the actual 2026 new vehicle industry volume to vary from expectations. Many factors, including brand and geographic concentrations as well as the industry sales mix between retail and fleet new vehicle unit sales volume, have caused our past results to differ from the industry’s overall trend. Our new vehicle sales strategy focuses on our retail new vehicle sales (as opposed to fleet new vehicle sales) and, as a result, we believe it is appropriate to compare our retail new vehicle unit sales volume to the industry retail new vehicle seasonally adjusted annual rate of unit sales volume (the “retail new vehicle SAAR”) (which excludes fleet new vehicle sales). According to PIN from J.D. Power, the retail new vehicle SAAR increased 1% and decreased 4% to approximately 13.6 million and 13.2 million vehicles for the three and six months ended June 30, 2026, respectively, from approximately 13.4 million and 13.7 million vehicles for the three and six months ended June 30, 2025, respectively.

Franchised Dealerships Segment

As a result of the acquisition, disposition, termination or closure of certain franchised dealership stores in 2025 and 2026, the change in reported amounts from period to period may not be indicative of the current or future operational or financial performance of our current group of operating stores.

Same store retail new vehicle revenue increased 1% during the three months ended June 30, 2026, driven by a 1% increase in average selling price per new retail unit. Same store retail new vehicle revenue decreased 4% during the six months ended June 30, 2026, primarily driven by a 5% decrease in retail new vehicle unit sales volume. Retail new vehicle gross profit decreased 17% and 15% during the three and six months ended June 30, 2026, respectively, due primarily to increased price competition as a result of increasing levels of available inventory and higher inventory invoice costs, which combined to drive lower retail new vehicle gross profit per unit. Retail new vehicle gross profit per unit decreased $559, or 16%, to $2,872 per unit during the three months ended June 30, 2026. Retail new vehicle gross profit per unit decreased $349 per unit, or 11%, to $2,934 per unit during the six months ended June 30, 2026. On a trailing quarter cost of sales basis, our reported Franchised Dealerships Segment new vehicle inventory days’ supply was approximately 56 days as of June 30, 2026, compared to 54 days as of June 30, 2025.

Same store retail used vehicle revenue increased 9% and 5% during the three and six months ended June 30, 2026, respectively, driven primarily by a 7% and 5% increase in retail used vehicle unit sales volume, respectively. Retail used vehicle gross profit decreased 8% and 4% during the three and six months ended June 30, 2026, respectively, primarily due to lower retail used vehicle gross profit per unit. Retail used vehicle gross profit per unit decreased $214 per unit, or 13%, to $1,401 per unit during the three months ended June 30, 2026. Retail used vehicle gross profit per unit decreased $136 per unit, or 8%, to $1,467 per unit during the six months ended June 30, 2026. Same store wholesale vehicle gross loss worsened by approximately $2.0 million to a gross loss of approximately $2.8 million during the three months ended June 30, 2026, due primarily to a $456 per unit, or 404%, worsening of wholesale vehicle gross loss per unit as a result of changes in pricing and demand for vehicles at wholesale auction. Same store wholesale vehicle gross loss worsened by approximately $3.0 million, to a gross loss of approximately $4.5 million during the six months ended June 30, 2026, due primarily to a $352 per unit, or 277%, worsening of wholesale vehicle gross loss per unit as a result of changes in pricing and demand for vehicles at wholesale auction. We generally focus on maintaining Franchised Dealerships Segment used vehicle inventory days’ supply in the 25- to 35-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. On a trailing quarter cost of sales basis, our reported Franchised Dealerships Segment used vehicle inventory days’ supply was approximately 35 days as of both June 30, 2026 and June 30, 2025.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Same store Fixed Operations revenue increased 3% and 4% during the three and six months ended June 30, 2026, respectively, driven primarily by increased service capacity as a result of additional technician headcount, and higher parts and labor costs that were passed along to consumers. Same store Fixed Operations gross profit increased 2% and 4% during the three and six months ended June 30, 2026, respectively, driven primarily by higher customer pay revenue contribution and higher warranty and internal, sublet and other gross margin contribution. Same store Fixed Operations gross margin decreased 30 basis points, to 51.0% during the three months ended June 30, 2026, and increased 10 basis points, to 51.1%, during the six months ended June 30, 2026.

Same store F&I revenue decreased 1% and remained flat during the three and six months ended June 30, 2026, respectively, driven by a 4% decrease and 1% increase in F&I gross profit per retail unit, respectively, partially offset by a 3% increase and 1% decrease in retail new and used vehicle unit sales volume, respectively. Same store F&I gross profit per retail unit decreased $108 per unit, or 4%, to $2,619 per unit during the three months ended June 30, 2026 primarily due to lower penetration rates for other aftermarket product contracts, which was partially offset by a higher penetration rate for finance contracts, higher gross profit per service contract, and changes to our F&I product cost structure. Same store F&I gross profit per retail unit increased $20 per unit, or 1%, to $2,607 per unit during the six months ended June 30, 2026, due primarily to higher gross profit per finance, service and

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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and related notes thereto and “Item 1A. Risk Factors” included in this Annual Report on Form 10-K. For comparison and discussion of our results of operations for the year ended December 31, 2024 (“2024”) to our results of operations for the year ended December 31, 2023 (“2023”), please refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for 2024.

Unless otherwise noted, we present the discussion in this Management’s Discussion and Analysis of Financial Condition and Results of Operations on a consolidated basis. To the extent that we believe a discussion of the differences among reportable segments will enhance a reader’s understanding of our financial condition, cash flows and other changes in financial condition and results of operations, the differences are discussed separately.

Unless otherwise noted, all discussion of increases or decreases are for the year ended December 31, 2025 (“2025”) compared to 2024. The following discussion of Franchised Dealerships Segment new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net is on a same store basis, except where otherwise noted. All currently operating franchised dealership stores are included within the same store group as of the first full month following the first anniversary of the store’s opening or acquisition. The following discussion of EchoPark Segment used vehicles, wholesale vehicles, and finance, insurance and other, net is on a reported basis, except where otherwise noted. All currently operating EchoPark stores in a local geographic market are included within the same market group as of the first full month following the first anniversary of the market’s opening or acquisition. The following discussion of Powersports Segment new vehicles, used vehicles, wholesale vehicles, parts, service and collision repair, and finance, insurance and other, net is on a same store basis, except where otherwise noted. All currently operating stores in the Powersports Segment are included within the same store group as of the first full month following the first anniversary of the store’s opening or acquisition.

Overview

We are one of the largest automotive retailers in the U.S. (as measured by reported total revenue). As a result of the way we manage our business, we had three reportable segments as of December 31, 2025: (1) the Franchised Dealerships Segment; (2) the EchoPark Segment; and (3) the Powersports Segment. For management and operational reporting purposes, we group certain businesses together that share management and inventory (principally used vehicles) into “stores.” As of December 31, 2025, we operated 111 stores in the Franchised Dealerships Segment, 18 stores in the EchoPark Segment, and 14 stores in the Powersports Segment. The Franchised Dealerships Segment consists of 134 new vehicle franchises (representing 24 different brands of cars and light trucks) and 16 collision repair centers in 18 states. The EchoPark Segment consists of 18 stores operating in 10 states. The Powersports Segment consists of 41 franchises at 14 locations (11 full-service dealerships and three authorized retail outlets) in three states.

The Franchised Dealerships Segment provides comprehensive sales and services, including: (1) sales of both new and used cars and light trucks; (2) sales of replacement parts and performance of vehicle maintenance, manufacturer warranty repairs, and paint and collision repair services (collectively, “Fixed Operations”); and (3) arrangement of third-party financing, extended warranties, service contracts, insurance and other aftermarket products (collectively, “F&I”) for our guests. The EchoPark Segment sells used cars and light trucks and arranges third-party F&I product sales for our guests in pre-owned vehicle specialty retail locations and does not offer customer-facing Fixed Operations services. The Powersports Segment offers guests: (1) sales of both new and used powersports vehicles (such as motorcycles, personal watercraft and all-terrain vehicles); (2) Fixed Operations activities; and (3) F&I services. All three segments generally operate independently of one another with the exception of certain shared back-office functions and corporate overhead costs.

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SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Summary

Retail Automotive Industry Performance

The U.S. retail automotive industry’s total new vehicle (retail and fleet combined) unit sales volume was approximately 16.3 million vehicles in 2025, an increase of 1%, compared to approximately 16.1 million vehicles in 2024, according to the Power Information Network (“PIN”) from J.D. Power. We currently estimate the 2026 new vehicle industry volume will be between 15.8 million vehicles (a decrease of 3% compared to 2025) and 16.5 million vehicles (an increase of 1% compared to 2025). The effects of interest rates, changes in consumer confidence, availability of consumer financing, manufacturer inventory production levels, incentive levels from automotive manufacturers or shifts in such levels, or timing of consumer demand as a result of economic conditions, natural disasters or other unforeseen circumstances could cause the actual 2026 new vehicle industry volume to vary from expectations. Many factors, including brand and geographic concentrations as well as the industry sales mix between retail and fleet new vehicle unit sales volume, have caused our past results to differ from the industry’s overall trend. Our new vehicle sales strategy focuses on our retail new vehicle sales (as opposed to fleet new vehicle sales) and, as a result, we believe it is appropriate to compare our retail new vehicle unit sales volume to the industry retail new vehicle seasonally adjusted annual rate of unit sales volume (the “retail new vehicle SAAR”) (which excludes fleet new vehicle sales). According to PIN from J.D. Power, the retail new vehicle SAAR increased 4%, to approximately 13.6 million vehicles, in 2025, from approximately 13.1 million vehicles in 2024.

CDK Outage

On June 19, 2024, CDK Global (“CDK”), a third-party provider of certain information systems, notified us that CDK had suspended certain systems used by us in response to a cybersecurity incident impacting CDK (the “CDK outage”). This outage adversely affected our business and results of operations during the second and third quarters of 2024. We estimate the disruption from the CDK outage negatively impacted reported income before taxes by approximately $47.2 million during 2024 which includes approximately $13.4 million in additional compensation expenses incurred as a result of the incident. In connection with the CDK outage, we recognized $10.0 million in pre-tax income from cyber insurance proceeds during the three months ended December 31, 2024 and $40.0 million in pre-tax income from cyber insurance proceeds during 2025, which were recorded as a reduction to selling, general and administrative expenses.

Impairment Charges

Impairment charges were approximately $173.8 million and $3.9 million in 2025 and 2024, respectively. Impairment charges for 2025 included approximately $165.9 million in the Franchised Dealerships Segment related to indefinite lived franchise assets, approximately $0.2 million in the EchoPark Segment related to property held for sale, and approximately $7.6 million in the Powersports Segment related to indefinite lived franchise assets. Impairment charges for 2024 included approximately $2.7 million in the EchoPark Segment related to fixed assets, lease right-of-use assets, and other contractual obligations related to abandoned property as a result of our decisions to indefinitely suspend operations at certain EchoPark locations, and approximately $1.2 million of property and equipment impairment charges related to the Franchised Dealerships Segment.

Franchised Dealerships Segment

As a result of the acquisition, disposition, termination or closure of several franchised dealership stores in 2024 and 2025, the change in consolidated reported amounts from period to period may not be indicative of the current or future operational or financial performance of our current group of operating stores. Unless otherwise noted, all discussion of increases or decreases are for 2025 compared to 2024. The following discussion is on a same store basis (which excludes results from disposed stores), except where otherwise noted. All currently operating franchised dealership stores are included within the same store group as of the first full month following the first anniversary of the store’s opening or acquisition.

Same store retail new vehicle revenue increased 5% in 2025, primarily driven by a 2% increase in retail new vehicle unit sales volume, driven in part by an increase in consumer demand for electric vehicles ahead of expiration of the federal tax credit in the third quarter of 2025, combined with a 2% increase in retail new vehicle average selling price. Retail new vehicle gross profit decreased 7% in 2025, due primarily to increased price competition resulting from increasing levels of available inventory and higher inventory invoice cost, which combined to drive lower retail new vehicle gross profit per unit. Retail new vehicle gross profit per unit decreased $310 per unit, or 9%, to $3,094 per unit. On a trailing quarter cost of sales basis, our reported Franchised Dealerships Segment new vehicle inventory days’ supply was approximately 48 days as of December 31, 2025, compared to 46 days as of December 31, 2024.

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SONIC AUTOMOTIVE, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Same store retail used vehicle revenue increased 3% in 2025, driven by a 3% increase in retail used vehicle average selling price. Retail used vehicle gross profit increased 2% in 2025, primarily due to higher retail used vehicle gross profit per unit. Retail used vehicle gross profit per unit increased $25 per unit, or 2%, to $1,516 per unit in 2025, due primarily to higher retail used vehicle average selling price. Same store wholesale vehicle gross loss worsened by approximately $4.5 million, to a gross loss of $8.8 million during 2025, due primarily to a $188 per unit, or 91%, worsening of wholesale vehicle gross loss per unit as a result of changes in pricing and demand for vehicles at wholesale auction. We generally focus on maintaining used vehicle inventory days’ supply in the 25- to 35-day range, which may fluctuate seasonally, in order to limit our exposure to market pricing volatility. On a trailing quarter cost of sales basis, our reported Franchised Dealerships Segment used vehicle inventory days’ supply was approximately 31 days as of both December 31, 2025 and 2024.

Same store Fixed Operations revenue increased 6%, driven primarily by increased service capacity as a result of additional technician headcount and higher parts and labor costs that were passed along to consumers. Fixed Operations gross profit increased 8% in 2025, driven primarily by higher warranty revenue contribution and higher warranty gross margin. Fixed Operations gross margin increased 60 basis points, to 51.0%, in 2025, driven primarily by an increase in warranty revenue contribution and higher warranty gross margin.

Same store F&I revenue increased 9% in 2025, driven by a 7% increase in F&I gross profit per retail unit and a 1% increase in retail new and used vehicle unit sales volume. F&I gross profit per retail unit increased $174 per un

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