Prepared remarks
Hello, everyone. Thank you for joining us, and welcome to AutoNation Inc.'s Second Quarter 2026 Earnings Call. I will now hand the conference over to Derek Fiebig, Vice President of Investor Relations. Derek, please go ahead.
Thanks, Kenneth, and good morning, everyone. Welcome to AutoNation's Second Quarter 2026 Conference Call. Leading our call today will be Mike Manley, our Chief Executive Officer; and Tom Szlosek, our Chief Financial Officer. Following their remarks, we'll open the call to questions. Before beginning, I'd like to remind you that certain statements and information on this call, including any statements regarding our anticipated financial results and objectives, constitute forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks that may cause our actual results or performance to differ materially from such forward-looking statements. Additional discussions of factors that could cause our actual results to differ materially are contained in our press release issued today and in our filings with the SEC. Certain non-GAAP financial measures as defined under SEC rules will be discussed on this call. Reconciliations are provided in our materials and on our website located at investor.autonation.com. With that, I'll turn the call over to Mike.
Yes. Thank you, Derek, and good morning, everybody. Thank you for joining us today. So as usual, we're going to provide a detailed discussion of our second quarter results, after which we'll take your calls on Q&A. Now once we finish the Q&A session, I'm going to share with you some thoughts on our performance over time and our expectations going forward. So please don't disconnect after the Q&A. Now Slide 3 is a quick summary of our main messages. We think the industry and consumers are in good shape. The June SAAR is the highest June in four years. Consumer sentiment is improving every month. Our banking partners are reporting a 20% increase in applications and originations, and their delinquencies continue to improve. Aftersales was once again solid. In our workshops, internal pay was moderately down, broadly in line with our unit volumes. However, customer pay, which for us is a more relevant indication of aftersales performance in our market, was up delivering a gross profit that increased by 7% in total and 4% on a same-store basis. Now our strategy to grow and develop our parts wholesale is also gaining traction and starting to pay off. Our wholesale businesses saw revenues increase by 16% during the quarter. Now moving to vehicle sales, you will see that unit profitability in both new and used has remained within a tight band over the last four quarters, and our Customer Financial Services team, once again, had an industry-leading quarter. Now we're looking forward to the second half when the volume comparison headwinds from 2025 relating to tariff and EV credits lapse. As always, SG&A management is front and center, and you will see meaningful progress in Q2 and a path to our 66% to 67% expectation range by year-end. AutoNation Finance continues its growth, generating $11 million profit for the quarter. Free cash flow, frankly, has been excellent. We're up 11% year-to-date and continue to deploy our cash in a consistent shareholder-focused way, investing $317 million on attractive M&A and $457 million on share repurchases. Now with that opening, let me get into the details by business. Moving to Slide 4. For the quarter, we reported adjusted EPS of $5.56, which was up from $5.46 a year ago, marking our sixth consecutive quarter of year-over-year growth. Results were again led by aftersales, which drives half of our profits and delivered record gross profit of $607 million, increasing both sequentially from the first quarter and year-over-year from a very tough comparison. This revenue and income stream is durable, has a recurring nature and is high margin. It's also an important driver of customer engagement and retention. Our repair order volume was strong and customer pay fueled our revenue growth, increasing 7% from a year ago. As I previously mentioned, we had 16% growth in wholesale parts. Overall, aftersales performance reflects disciplined execution as we continue to grow this portion of the business while offsetting lower internal reconditioning activity tied to our used vehicle stocking mix and volume. In Customer Financial Services, the team delivered strong second quarter results with CFS per-vehicle profitability of $2,800. This represents a 3% increase from a year ago, even after accounting for increased loan originations from AutoNation Finance, which, as we've discussed before, bring a headwind to CFS profit in the quarter but a significantly improved profit per unit over the term of the loan to AutoNation Finance. Tom, I know you'll give everyone on the call more details on that, of course. Our CFS team continues to run a value-driven, customer-focused process that provides our customers with critical products and services. Once again, customers purchased on average two products per vehicle with extended service contracts leading the mix, clearly supporting future aftersales revenue and customer retention. Finance penetration also continues to grow from a year ago with roughly three-quarters of units sold with a finance contract. And we continue to see sequential stability in our profit per unit for both new and used vehicles. New vehicle per-unit profitability of nearly $2,400 represents the fourth consecutive quarter of stability. As expected, new unit sales were lower versus a year ago, which benefited from tariff-related pull-forward activity and higher BEV sales. BEV sales were down by more than 30% year-over-year. Importantly, our market share remained relatively consistent with the first quarter in the markets we serve. In used vehicle sales, we continue to see strength in unit sales for vehicles priced about $40,000. Our volume was slightly impacted by a lower mix of vehicles priced below $20,000 than we would like, and we continue to work to improve our accessibility to vehicles priced in this range. Used vehicle profitability remained stable at approximately $1,600 per unit. Total gross margin was just under 18% of revenue for the quarter, which represents consistent top-tier performance for the sector. Now turning to Slide 5. Adjusted free cash flow continues to stand out, including more than $180 million generated in the quarter and $439 million for the first half of the year. The year-to-date conversion rate was 125%. We continue to deploy capital in a disciplined manner. During the first half, we reinvested $443 million in the business through CapEx and acquisitions, and we returned $457 million to shareholders through share repurchases. The acquisitions we made were Toyota of Newnan, Georgia, in the Atlanta area and three premium luxury stores in the San Francisco Bay area. These will add additional scale to markets where we already have meaningful presence. These acquisitions bring approximately $600 million in annual revenue and around 9,700 in new and used unit sales. AutoNation Finance continued to scale with the portfolio growing to $2.67 billion from $1.76 billion a year ago. Funding also continued to improve, with debt-funded status increasing to 91% from 83% a year ago. Overall, it was a solid quarter. And as I mentioned, it was the sixth consecutive quarter where we have delivered year-over-year increases in adjusted EPS. Now with that introduction, I'm going to turn you over to Tom for a closer look at the quarter's financial results.
Thanks, Mike. Turning to Slide 6, I'll walk through our quarterly P&L. Total revenue was $6.93 billion, essentially in line with the $6.97 billion in the second quarter last year as aftersales growth helped offset tariff and BEV-related headwinds. Revenue was also up 6% sequentially from $6.55 billion in the first quarter. Gross profit was $1.23 billion compared with $1.28 billion a year ago and $1.21 billion in the first quarter, representing 17.8% of revenue and continued top-tier performance. Adjusted SG&A expense was 68.2% of gross profit compared with 66.2% a year ago and 69.8% in the first quarter, reflecting a 160 basis point sequential improvement. We expect SG&A as a percentage of gross profit to reach our 66% to 67% target range on a run-rate basis by the end of the year. AutoNation Finance continued to scale with profitability increasing to $11 million in the quarter compared with $9 million in the first quarter and $2 million a year ago. Adjusted operating income was $343 million compared with $369 million in the prior year quarter and $312 million in the first quarter, delivering a consistent operating margin of approximately 5%. Weighted average shares outstanding of 33.8 million were down 4.5 million shares or approximately 12% year-over-year, reflecting our share repurchase activity. Diluted EPS was $5.56 per share compared with $5.46 in the prior year quarter and $4.69 in the first quarter. The year-over-year adjusted EPS growth reflects our continued operating execution and disciplined capital allocation. Moving to Slide 7. Aftersales remains our largest gross profit contributor and delivered record gross profit in the quarter. Aftersales revenue increased to $1.26 billion from $1.22 billion a year ago, reflecting continued growth in a durable recurring and high-margin part of the business. Gross margin was 48.1% compared with 49% in the prior quarter with the decline primarily related to the higher mix of wholesale parts, which, as Mike indicated, were up 16% in the quarter. Margin was stable sequentially versus the first quarter. Revenue growth reflected continued strength in customer pay, which increased 7% year-over-year. And as I said, wholesale parts increased 16%, driven by recent commercial wins. Repair order growth was strong in the key customer-facing categories with customer pay repair orders up 5% and warranty up 8%. This more than offsets cyclically lower internal repair orders. Total aftersales gross profit increased $9 million from the second quarter of 2025, including the benefit of acquisitions. This was led by customer pay, which increased 7% year-over-year and wholesale parts, which increased 9%. Warranty increased slightly and internal gross profit was down, reflecting cyclical softness. We remain focused on deploying technology to drive additional volume and productivity and on hiring, developing and retaining technicians. These efforts increased same-store franchise technician head count by more than 2% year-over-year, reflecting improved retention. Growing our technician workforce is key to consistently delivering mid-single-digit growth in aftersales gross profit. I'm now on Slide 8, Customer Financial Services. The momentum in CFS continued with Q2 per-unit profitability of $2,799, up approximately 3% from $2,712 a year ago, while absorbing an approximately 2% drag from increased AutoNation Finance loan originations. Total CFS gross profit was $358 million compared with $368 million in the prior year quarter with lower retail unit volume more than offsetting the stronger per-unit profitability I mentioned. Results were supported by continued robust product and finance penetration along with improved service contract and commission profitability. This performance reflects continued execution by the team and the strength of our value-driven, customer-focused process. Slide 9 provides an update on AutoNation Finance, our captive finance company, and its continued solid performance. AutoNation Finance delivered another record quarter, generating $11 million of profit in the second quarter and $20 million for the first half of 2026 compared with $2 million in 2025 as we continue to profitably scale this business. Total interest margin increased $11 million or 35% year-over-year driven primarily by continued portfolio growth. Delinquencies and reserve rates remain stable, reflecting disciplined underwriting and continued portfolio performance. 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. The AutoNation Finance portfolio grew to $2.67 billion, up from $1.76 billion a year ago, an increase of approximately 52%. We also closed our third ABS transaction in June 2026 for approximately $550 million, increasing the portfolio to 91% debt funded compared with 83% in the second quarter of 2025. To close on AutoNation Finance, our compelling offerings are driving healthy customer take-up, and we continue to expect attractive returns on equity as profitability grows and equity investment requirements moderate. Slide 10 provides some color on new vehicle performance. New vehicle unit sales were 63,240 units, down 4% from a year ago, principally driven by a decline in sales of battery electric vehicles. As Mike mentioned, our market share performance remained consistent with the first quarter in the markets we serve. By segment, import unit sales increased 1%, partially offset by declines of 12% in domestic and 4% in premium luxury. Premium luxury was down 1%, excluding the battery electric vehicle impact. New vehicle gross profit per unit was $2,381 compared with $2,785 in the prior year quarter, reflecting higher vehicle costs. Importantly, new unit profitability has been relatively stable sequentially over the last four quarters. Inventory day supply is healthy with domestic at 73 days and luxury at 66 days while import remained at 34 days. Turning to Slide 11. As Mike mentioned, used vehicle supply remains tight for lower-priced units, and the team executed well, balancing sourcing, unit volumes and overall profitability. Used retail unit sales were lower year-over-year, but mix remained favorable with units priced above $40,000 up 10%, driving an 8% increase in revenue per unit. The unit profitability in this category is more than double that for the rest of our used business. Used vehicle gross profit per unit was $1,582 in the second quarter compared with $1,622 in the prior year with unit profitability remaining stable over the last year. Our vehicle supply remains healthy with approximately 90% of used vehicles internally sourced. And we expect the off-lease supply to accelerate meaningfully in the second half. Turning to Slide 12 on free cash flow. Adjusted free cash flow was $439 million for the first half of 2026 compared with $394 million a year ago, an 11% increase. Conversion improved to 125% from 100%, reflecting our focus on working capital and cycle times to support robust free cash flow generation. For the full year, we remain on track for approximately $325 million of CapEx. Slide 13. Our consistent cash conversion gives us flexibility to invest in growth and drive shareholder value. Through June 2026, we deployed $900 million of capital compared with $478 million a year ago, including $457 million of share repurchases, $317 million for M&A and $126 million of capital expenditures. The Toyota store in Georgia and three premium luxury stores we acquired in the San Francisco Bay Area represent attractive brands and have $600 million of combined annual revenue and add to our scale and density in these markets. Adjusted cash from operations was $565 million through June 2026 compared with $548 million in the prior year period, and total capital deployed represented 159% of adjusted cash from operations compared with 87% a year ago, reflecting significant reinvestment in the business and continued returns to shareholders. Our capital allocation approach remains the same: fund CapEx, which is mostly compulsory maintenance-related spend, pursue selected M&A opportunities that add scale and density, return residual cash flow to investors and maintain our investment-grade rating. Our balance sheet remains strong; covenant leverage remains comfortably within our targeted 2x to 3x EBITDA range. The strength of our balance sheet and robust cash flow generation give us significant flexibility to continue deploying capital, driving shareholder returns and growing earnings per share. At this point, we'll open the lines for your questions.
Kenneth, if you could please remind the participants how to get in queue for the question-and-answer period.
Please follow the operator's instructions to enter the question queue. Your first question today comes from the line of Rajat Gupta from JPMorgan.
Operator, can you check his line's open, please?
Questions and answers
Sorry, can you hear me now? Sorry about that. I just wanted to start with parts and services. Three percent revenue growth, but flat to close profit growth. It looks like there was a margin mix impact. It sounds like from your remarks that the consumer is fine in general. But curious what's driving the overall gross profit deceleration? Is this just a temporary phenomenon based on some tough comps? When can we expect growth there to recover back to the mid-single-digit cadence over the next few quarters? And I have a quick follow-up.
Yes, Rajat. As I said, I am very pleased with the way the aftersales team continue to grow customer-pay businesses. Regardless of whether comps are tough or not, I actually look at penetration in the marketplace and how we're retaining our customers. Within the overall number, you're picking up a mix issue on internal pay as our mix shifted more towards $20,000 to $40,000 cars and less towards under $20,000 cars, which obviously has a different mix of preparation and reconditioning, and we saw shifts in warranty mix. We moved much more towards higher volume, lower content per repair order in warranty. I think all of those things are just point-in-time and temporary. I look at the underlying performance in what really matters to me, which is penetration in the park and customer pay. Notwithstanding the fact that the addressable market in the aftersales park is still working through the COVID hole in the three- to ten-year park, which for us is obviously prime, our aftersales teams have made that up with improved penetration. I think that's very positive and will continue. Any temporary drop in internal pay and warranty is a point-in-time issue, nothing structural, and you should look at the underlying performance with the penetration in the park. We did take time to call out our wholesale performance. Obviously that's at a lower margin, and therefore you're going to get an effect on the overall margin. But that's all incremental business for us — we're up very significantly there — and that is share gain in that marketplace. Again, I think that is a result of the work that the team has done. So all in all, I'm encouraged by aftersales performance and believe that we can continue that in customer pay, not just in the next half, but forward.
Got it. That's helpful color. I just want to follow up on the SG&A comments. If I heard correctly, I think you mentioned 66% to 67% on a run-rate basis. That's a pretty meaningful improvement versus the levels today. I know you've talked about the investments you were making on customer experience. Is it just that some one-time expenses are more weighted toward the first half and go away? What are the drivers there?
Yes. I think what you'll see, Rajat, are a number of drivers: improved gross profit, a number of productivity initiatives that we have, including programs around discipline in advertising where we've invested more heavily in the first half and that begins to moderate. You also saw that we took some portfolio actions and that will help the SG&A rate. So there are a number of items in the pipeline that are moving in the right direction.
Your next question comes from the line of Mike Ward with Citigroup.
I wonder if you could talk a little bit about variable growth. It looks like it's stabilized in the roughly $4,500 per-unit range and it goes up and down $50 or $100 depending on the quarter and mix. Is that the new normal? When I look at it, new and used are down, but F&I is strong. What could disrupt that trend? What are the things that are really driving that stability as we look at it?
Thanks, Mike. Great question. Your question reflects the focus we have on total unit profitability. You can pick at individual PVRs and so forth, but for us it's a total economic equation, including the products and services we offer from a CFS perspective. We think our trajectory is very strong. Over the last four quarters you can look at new and used unit profitability and see they're in a very narrow bandwidth, and we expect that to continue. Couple that with growth in CFS, and you end up with a pretty attractive performance and expectation going forward. We're looking at it comprehensively and think that's the way it should be done.
Let me add to that. I talked in my opening comments about the importance of CFS to us and that we are really attaching very valuable products for our customers as well as for us. The main attach rate is in extended service contracts and warranties, and that's very important. As we think about the overall economic balance, you're seeding future customers for our aftersales and service departments. That is a result of industry-leading credit performance and the temporary headwinds from AutoNation Finance's growth, because as AN Finance scales, that profit is released over time, not all at once. So notwithstanding that, it is a great result in CFS and AN Finance continues to grow and add to our long-term returns.
Very helpful. Secondly, what percentage do CPO sales represent of your used? And you mentioned lease returns will pick up a little bit in late '26 into '27. It seems like there is more financing on the used vehicle side. Is that another potential boost for CFS?
Our overall finance rate is something we track carefully and it's been very solid and stable. Our penetration, particularly on used vehicles, has continued to increase. We see incremental opportunity as we go forward with finance penetration through AN Finance. We also have a process to work in partnership with other finance providers for credit types that aren't our target. That is holding up well and we think there is incremental opportunity to drive that through the second half and into 2027.
Glad you asked that. CPO continues to move in the right direction for us. We were roughly 15% last year in the first half; this year we're closer to 20%. So we're happy with the progress. On lease returns, the progress will significantly increase in the second half from the first half, probably upwards of 30% to 40% relative to prior months — these are modest numbers relative to total unit sales but the lease volumes will trend strongly in the second half.
Yes. We've passed through the trough of lease returns and are beginning to see recovery. It's not back to pre-COVID levels, but it's going to grow nicely in the second half.
Your next question comes from the line of John Babcock with Barclays.
A quick question on off-lease vehicles. Any thoughts on what percentage of off-lease vehicles are going to be kept by the originating dealer this time around, given everything going on with residual values and demand for off-lease vehicles?
It's certainly increasing, John. When supply was restricted you saw significant increases in residual values and a lot of equity in returning leases, which customers often took advantage of. That's beginning to normalize. The number of returns that come back to us, or are bought out — which is our preference as we supply a new vehicle — has increased. It's still not back to historical levels, but we've seen steady progress over the last few quarters.
Okay. You're not the only dealer to report better GPUs on the used side. How sustainable do you think the increase in GPUs was this quarter, recognizing for you it may have been a little less than some peers? Are there market factors that might lead to a pullback later in the year?
GPU improvement comes from multiple places, not just average transaction price. Our ability to drive vehicles to market faster and turn them quicker contributes. Our relative turn rate is healthy, and because we're acquiring many vehicles through channels we control, including trade and off-lease, it impacts average purchase price positively. We focus on return on invested capital in used cars rather than pure used volume. Investing in higher-priced used cars, turning them at a reasonable rate, can generate better returns than sub-$20,000 cars. The key drivers — faster to market, good reconditioning control, reasonable turn rates and favorable mix — are under our control, so the improvement is sustainable, though you'll see cyclical variation.
Your next question comes from the line of Bret Jordan with Jefferies.
On the wholesale business, it got some ink in the prepared remarks. How much of parts and service is wholesale? When you think about margin of that mix, can you give clarity on how big it could be, where you're taking share from, and whether two to three years out this becomes a material piece of the business?
Great question. Franchise stores historically manage their own parts customer base and single-brand supply chains, which misses opportunities for growth and cost synergies. We're orchestrating the business so that products across brands are managed through one supply chain. Customers appreciate the simplicity of dealing with a single vendor, and that's resulted in meaningful commercial wins and contributed to the 16% growth in the quarter. We're able to scale a relatively stable cost and inventory base, which should help margins. We're investing in the business and technology to drive further efficiencies.
I'll add that this is a great example of why we focus on building density in our clusters through M&A. The wholesale growth is largely coming from share gains into collision and non-franchise aftermarket suppliers operating in the same vehicle park. Collision volumes are down, so the growth we're seeing is healthy and is primarily share gain. Our virtual parts warehouse and distributed system are beginning to show benefits, and there's more opportunity.
Is this strictly OE parts you're selling into the aftermarket? A few years ago you had a private label import parts business as well. Are you selling OE product or a mix?
The vast majority of our growth is OE parts. It's not aftermarket private label — it's OE. While margins in that business are not as attractive as some other parts businesses relative to stocking costs, the leverage we have with the OEM brands we represent is advantageous.
Your next question comes from the line of Jeff Lick with Stephens Inc.
Mike, I was wondering if you could give your point of view on the new business from a couple of angles. First, same-store was down 4.7% year-over-year, but on a two-year basis it was up 2.7%, which is better than many peers. First, curious your thoughts on the new market as we go into the second half. Also, internally do you think about marginal transactions you don't want to lose because that's a customer — maybe you're willing to sacrifice a bit of GPU to gain new volume, considering your emphasis on service and parts same-store sales?
Jeff, your analysis is spot on. Often headlines miss the underlying detail. On the new market going into the second half, SAAR is at a healthy place and consumers are resilient. From an affordability perspective, Q1 showed the best affordability levels we've seen in recent years when considering wages, average transaction price and incentives; affordability is significantly improved over the last 24 to 48 months. That balance was largely stable from Q1 to Q2, and we expect it to be stable into Q3 and Q4 absent shocks. That positions AutoNation well for the second half. Regarding customer lifetime value, we focus on acquiring customers and building longer relationships. We measure customer lifetime value, active customers and period of activity, and we balance acquisition cost against the lifetime economics. That means sometimes we may accept short-term margin pressure on acquisition to build lifetime value through aftersales, finance, insurance pilots and other products. That is our approach. We're focused on the best use of capital for shareholder returns, and our six consecutive quarters of EPS growth speaks to that approach. So yes, lifetime value matters and we manage acquisition economics with that multi-year lens.
Your next question comes from the line of Rob Saltzman with UBS.
Strong customer-pay performance on the parts side, plus 7% in the quarter. Can you talk about your strategy for driving that segment within parts and how you compete with independent repair shops on customer pay? How do you keep customers coming back to your shops?
That's a relevant question. The overall aftersales park will grow over coming years, and how you penetrate that park and add products and services is critical. We focus on creating the right balance to improve penetration. The 0- to 3-year relationship is hugely important because it establishes the relationship through year 10, and we're seeing improvement in penetration despite a dip in the addressable park. Unlocking the older-vehicle park is also important. We compete with non-franchise players by packaging and bundling value, communicating it effectively, and delivering a credible alternative to independent shops. All that customer-pay business is conquest, so the effort we put into packaging services pays off over time. Christian and the aftersales team focus heavily on communicating value and packaging offerings to be a compelling choice, and the team did a reasonable job in Q2 driving customer-pay growth.
One follow-up: technician headcount grew 2% in the quarter. How are you competing to recruit technicians and what role does technician growth play in your ability to deliver mid-single-digit aftersales growth?
Without great people you can't maintain or grow the business. It's an incredibly competitive market. We focus on the proposition AutoNation offers technicians: total rewards, career progression, training, recognition and a strong pathway into advanced roles like master tech or management. We celebrate technicians and parts teams — we recently ran technician recognition month — and we invest to retain and attract talent. The 2% growth in technicians is good, we need to continue that and protect retention.
I'll add that our investments in physical layouts and properties, tools and working conditions will grow to a meaningful portion of CapEx and will help with recruitment and retention as well.
Your next question comes from the line of John Saager with Evercore ISI.
On capital allocation: dealers discuss balancing acquisitions with buybacks, but use different valuation or strategic metrics. Can you frame your approach? How willing are you to pay a premium for private dealerships that run at higher margins? How do you balance growth and network benefits versus buying back stock at current valuations?
For us it's important to pay a competitive price for properties that are attractive in brands and locations where we have density. We have clear ROIC expectations that dictate what we will compete for. We'll pass on deals that we don't expect to meet our ROIC mark and return residual cash to shareholders. Over time, M&A spend may vary depending on where we can create value for shareholders. We focus on returns, not just headline revenue growth.
I'll add that our sixth consecutive quarter of EPS growth reflects our capital strategy. We think in terms of the individual shareholder return. We're disciplined on maintenance CapEx and look for the best use of every other dollar. Synergy and density in AutoNation allow us to make acquisitions that yield a great result today. That may mean we don't always lead in revenue growth headlines, but our consistent EPS growth and returns to shareholders are central to our approach. We focus on maximizing the return for each dollar on behalf of our shareholders.
Helpful. Adding on that, how do you think about sizing and leverage? Are there deals so large you might pause buybacks?
We emphasize return on invested capital. We also manage our investment-grade rating and have a healthy balance sheet. A large acquisition would come with more EBITDA and synergy opportunity; it would depend on return, upfront leverage and ability to delever. Typically you can delever quickly with the right deal and we have an open mind to opportunities that meet our return thresholds.
We have a great balance sheet and liquidity. If an investment gives the returns we expect and is the best use of our dollars, we'll find a way to execute even at very large scale. We'll use the same disciplined lens across investments.
The final question today comes from David Whiston with Morningstar.
On capital allocation, buybacks were up 80% year-over-year in the first half. Can you comment directionally for the second half? Will it be around that range or a lot less, or does it depend on the M&A environment?
Good question. Our priorities remain as stated: fund CapEx within a contained range, pursue selective M&A opportunities, and return residual cash flow to shareholders. Will second-half buybacks equal the first half? I don't comment on exact cadence, but buybacks remain an important priority and you can think of us as deploying the free cash flow we generate.
On a different topic, what's the trend this year versus prior years on customers buying vehicles online? Has that leveled off, increased, or trended down a bit?
Customers increasingly use online resources for pre-purchase and purchase, particularly younger generations. We're investing in digital channels to provide functionality and fulfillment options that customers prefer. The trend toward online research and purchase will continue and we're making investments to provide access across those channels.
There are no further questions at this time. I will now turn the call back to Mike Manley for closing remarks.
Yes. Thank you, and thanks for the great questions. I'm going to share some reflections on our sustained performance and a few forward expectations. Turning to Slide 16, AutoNation has set the pace in auto retail. We have strong brand offerings, attractive geographic positioning, scale and a committed team of associates who execute our playbook every day. These elements have enabled strong overall financial results. Our focus is on operating profits and cash flows, not necessarily being number one in every individual metric. Approximately 80% of our profits come from CFS and aftersales — high-margin, recurring earnings streams — and our growth and gross margins reflect this attractive business mix. We consistently deliver among the highest operating margins in the group due to operating standardization, strong measurement rigor and excellent field leadership. On Slide 17, our ROIC demonstrates capital-efficient delivery of results: over six years we've gone from roughly 9% ROIC to around 14%, generated over $6.3 billion in free cash flow and returned $6.5 billion to shareholders through buybacks. We think this is a strong track record and are well positioned to continue it. Slide 18 highlights our diversified model and the addition of AutoNation Finance. The business is scaling and producing attractive returns on equity. Consumer demand and industry sales are resilient, and we expect our unit sales to largely track the markets and brands we serve in both new and used vehicles. We remain focused on balancing volume, margin, inventory and customer experience within the lens of customer lifetime value — acquisition cost versus the value and services we provide. Sometimes margins will move up or down in the short term, but our longer-term focus remains on customer lifetime economics. Aftersales is well positioned for continued mid-single-digit growth in customer pay due to durable demand and recurring revenue characteristics. CFS continues to deliver sustained performance, reflecting disciplined execution on product penetration. AutoNation Finance's ongoing portfolio growth and improving year-over-year profitability contribute to the strength and diversification of our earnings profile. With more stable unit profitability, growth in CFS and aftersales, and lower shares outstanding, we expect adjusted EPS growth in the second half. Six consecutive quarters of EPS growth, combined with our capital allocation strategy, give us confidence in the near-term outlook. Capital allocation remains shareholder-focused with disciplined investment, selective portfolio optimization and continued returns to investors. Taken together, our business model, cash generation, disciplined deployment of cash and focus on operational execution position us to continue delivering attractive returns. On behalf of our team, thank you for participating in the call and for your questions. We'll see you next quarter.
This concludes today's call. Thank you for attending. You may now disconnect.