How to Approach Sonic Automotive Stock Post Q4 Earnings?

Sonic Automotive SAH, one of the leading automotive retailers in the United States, posted fourth-quarter 2025 adjusted earnings per share of $1.52, which increased 1% year over year. Total revenues declined 1% year over year to $3.87 billion.

A stretched balance sheet, tariff related headwind and strong competition remain a concern for SAH and cloud the prospects of the stock after the fourth-quarter earnings release.

High Debt & Margin Pressure to Ail Sonic Automotive

The company's stretched balance sheet plays as a spoilsport. Its long-term debt-to-capital ratio stands at 0.63, which is higher than the industry’s 0.25. Moreover, the company’s times interest earned ratio of 1.89 is unfavorable compared with the industry's ratio of 4.30.

Tariff-related OEM price increases and margin reductions could pressure demand. Management acknowledged that OEMs absorbed significant losses in 2025 and are unlikely to continue doing so. As these cost increases are passed through to consumers, demand elasticity may be tested in the coming quarters. Sustained price inflation combined with lower incentive support could pressure new-vehicle volumes, dealership throughput, and overall operating leverage.

Moderating same-store volume and margin trends play as a spoilsport. Same-store new vehicle retail volume declined 11% year over year in the fourth quarter, while same-store new vehicle GPU fell 7% to $3,033 per unit. Same-store used GPU declined 2% year over year and 10% sequentially to $1,379.

Rising floor plan interest expense poses incremental risk as the company guided to approximately a 10% increase in floor plan interest costs in 2026, driven by higher store count, brand mix shifts, and inflationary vehicle pricing. Since floor plan expense is tied to vehicle invoice values, higher pricing directly increases financed inventory balances. Elevated inventory values, therefore, create structural sensitivity to capital intensity and interest costs, potentially weighing on profitability if vehicle prices remain high.

Sonic competes with publicly and privately-owned dealerships, along with Internet-based vehicle brokers. Sonic’s finance and insurance business faces strong competition from various financial institutions and other third parties. Rising competition — especially in the used car market owing to the fragmented nature of the industry — and increasing price transparency can result in lower selling prices, thereby affecting the company’s profits.

EchoPark EBITDA is expected to decline in FY 2026, with guidance of $25–$35 million compared to $49.2 million reported in FY 2025. The decline is driven by incremental $10-$20 million brand marketing investment and costs associated with new store openings, which are expected to pressure near-term consolidated earnings and margins.

Conclusion

The company’s elevated leverage and weak interest coverage highlight balance sheet vulnerability at a time when rising floor plan costs are set to further strain profitability. Meanwhile, declining same-store volumes and shrinking margins in both new and used vehicles signal softening underlying demand. The anticipated pass-through of tariff-related price increases could dampen consumer affordability and test demand elasticity, compounding volume risks. Intensifying competition and growing price transparency in the fragmented used vehicle market add another layer of pressure.

Additionally, the projected decline in EchoPark EBITDA due to higher marketing spend and expansion costs is likely to weigh on near-term earnings. These factors suggest limited upside and increasing downside risks, making the stock less attractive in the current environment. Mounting financial and operational pressures, alongside Sonic Automotive’s current Zacks Rank #4 (Sell), make the stock a risky bet.

Stocks to Consider

Some better-ranked stocks in the auto space are Ford Motor F, Modine Manufacturing MOD and Strattec Security STRT, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for F’s 2026 sales and earnings implies year-over-year growth of 0.3% and 39.5%. The EPS estimate for 2026 and 2027 has improved 5 cents each in the past 30 days.

The Zacks Consensus Estimate for MOD’s fiscal 2026 sales and earnings implies year-over-year growth of 21.2% and 18.8%, respectively. The EPS estimate for fiscal 2026 and 2027 has improved 18 cents and 85 cents, respectively, in the past 30 days.

The Zacks Consensus Estimate for STRT’s fiscal 2026 sales and earnings implies year-over-year growth of 2.1% and 16.2%, respectively. The EPS estimate for fiscal 2026 and 2027 has improved $1.01 and 48 cents, respectively, in the past 30 days.

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This article originally published on Zacks Investment Research (zacks.com).

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