Despite headwinds, Lithia Motors Inc (LAD) reports highest-ever quarterly revenue and significant EPS improvement.
Summary
- Adjusted Diluted Earnings Per Share (EPS): $7.87, a 30% improvement sequentially.
- Quarterly Revenue: $9.2 billion, up 14% from Q2 of last year.
- Same Store Sales: Total same store revenues down 6.4%, gross profits declined 12.5%.
- Vehicle Gross Profit Per Unit: $4,762, down $951 compared to the same period a year ago.
- After Sales Business: Down 1.4% in the quarter.
- Financing Operations Income: $7.2 million in the quarter compared to an $18.7 million loss last year.
- Adjusted SG&A as a Percentage of Gross Profit: 67.9% during the quarter, 67% on a same-store basis.
- Adjusted EBITDA: $435 million in the second quarter.
- Net Leverage: Approximately 2.3 times, below the target of three times.
- Free Cash Flows: $127 million for the quarter.
- Share Repurchase: 2.9% of outstanding shares at a weighted average price of $256, with $615 million remaining under authorization.
Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lithia Motors Inc (LAD, Financial) achieved its highest ever quarterly revenue of $9.2 billion, up 14% from Q2 of last year.
- The company reported an adjusted diluted earnings per share of $7.87, a 30% improvement sequentially.
- Financing operations achieved profitability earlier than expected, with income of $7.2 million in the quarter compared to an $18.7 million loss last year.
- The company has made significant progress in cost-saving efforts, achieving the first stage of a 60-day plan aimed at creating $150 million in annualized SG&A cost savings.
- Lithia Motors Inc (LAD) purchased a minority stake in Wheels, a leading fleet management company, which is expected to create transformative synergies between their retail and fleet platforms.
Negative Points
- Total same-store revenues were down 6.4%, and gross profits declined 12.5% due to headwinds from the CDK outage.
- The CDK outage drove after-sales down almost 40% during the 12 days of the outage, impacting overall profitability.
- Adjusted diluted earnings per share decreased by 28% from Q2 of last year, with an estimated $1.10 impact from the CDK outage.
- Total vehicle gross profit per unit was resilient but still down $951 compared to the same period a year ago.
- The company faces challenges from affordability and higher interest rates, with unit sales in the quarter down 3%.
Q & A Highlights
Q: Bryan, you mentioned a nearly 50% increase in sequential EPS. Can you provide more context around this statement?
A: The concept is that the CDK outage cost us $1.10. Adding that back to the $7.87 EPS for the quarter, we were tracking almost a 50% increase, just over 40% excluding the Pinewood impact.
Q: Regarding the SG&A cost reduction plan, can you provide a framework for SG&A to gross profit in the third quarter?
A: We expect to be around the same level as this quarter. We have already realized $150 million in savings and are now over $200 million, with the remaining $100 million expected from inventory reductions by year-end.
Q: Can you elaborate on the potential impact of new car GPUs and their trajectory?
A: We believe our normalized total vehicle gross profit with F&I is between $4,200 and $4,500. Currently, we are at $4,700, so there might be a $200 to $500 reduction still needed. However, we are optimistic about maintaining or improving these levels.
Q: How does the partnership with Wheels impact your fleet management and overall business strategy?
A: The partnership allows us to sell new vehicles to Wheels' fleets, divest over 100,000 vehicles annually, and potentially manage maintenance for these fleets. This could significantly boost our service and parts business and introduce new subscription services.
Q: What is the expected impact of interest rate changes on your business?
A: Lower interest rates could significantly improve consumer affordability and reduce our inventory financing costs. We are targeting a $1 billion reduction in total inventory by year-end, which could save us around $100 million in interest expenses at current rates.
Q: Can you provide more details on the $1.10 impact from the CDK outage and potential recovery?
A: A portion of the $1.10 impact, primarily from service and parts, may be recoverable, but it is likely less than the majority. We do not expect a significant amount of this to be deferred into Q3.
Q: How are you balancing investments in your omnichannel strategy while cutting costs?
A: We have reduced marketing budgets by over 50% while maintaining consistent top-of-funnel activity. Our focus is on improving customer satisfaction and retention, which has led to a significant increase in our Google rating from 3.7 to 4.7.
Q: What is the outlook for used car GPUs, especially considering the UK impact?
A: We see opportunities for growth in used car GPUs, particularly by increasing sales of value auto cars, which yield higher profits and turn faster. There were no one-time events affecting used car GPUs; it was purely market conditions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
