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AutoNation (AN) saw a nice move higher on Friday when it reported its Q2 results. The dealership operator reported an impressive EPS beat, and just as notable was its record Q2 revenue, which grew 7.6% yr/yr to $6.97 bln. While the results were impressive, what seemed to please investors the most was that, despite the 25% tariff on foreign automobiles, the impact was fairly minimal.

• Management noted that AN saw limited additional impact on its Q2 results from tariffs, with MSRP and invoice prices being stable. Additionally, AN noted the June CPI report showed modest month/month declines in new and used vehicle pricing. Management's expectation is that AN will be fairly cushioned from any further tariffs due to its broad portfolio of brands and models.
• The impressive revenue was driven by sales of new vehicles with particular strength in its domestic segment. New vehicle sales increased 8% yr/yr, leading to a +9% increase in same-store new vehicle revenue. Its domestic segment increased 19% yr/yr, and +14% from Q1 on a same-store basis. This tells us its consumers are in better shape than expected, despite the tariffs, and there is a clear preference for domestic vehicles to avoid the tariffs.
• In terms of inventory, AN's supply of used vehicles is at its highest level since June 2022. However, availability remains constrained due to the lingering impact of lower vehicle production during COVID. That said, the company sourced over 90% of its used vehicles through trade-ins and its "We'll Buy Your Car" program, totaling 28,000 units for the quarter.
• AN feels well positioned in terms of its used car inventory for 2H25. However, new vehicle inventory ended the quarter at 41,000 units, down from 44,000 a year ago. While AN doesn't expect the same store unit growth in the first and second quarters to continue in 2H25, it is encouraged by new vehicle sales activity in the last couple of weeks.
• A bright spot appears to be its new hybrid and electric vehicles sales. Hybrid new vehicle unit sales, which is about 20% of AN's volume, increased more than 40% yr/yr, and battery electric new vehicle sales (7% volume), increased nearly 20% yr/yr. This mainly reflects OEM incentives, with some pre-buying ahead of the termination of government incentives.

Amid the healthy number of earnings reports last week, AN was a name that flew under the radar. Given its exposure to foreign automobile tariffs, we had concerns going into this report about what the impact might be. It turned out to be better than expected. The results were solid, and management's commentary around the impact of tariffs seemed to soothe investors' nerves. The stock traded higher on its Q2 results but is pulling back modestly today. With that said, the less-than-feared effect of tariffs is an encouraging sign.