Lithia Motors Q1 2025 Earnings Report

Lithia Motors EPS Results

• Actual EPS: $7.66
• Consensus EPS: $7.77
• Beat/Miss: Missed by -$0.11
• One Year Ago EPS: $6.11

Lithia Motors Revenue Results

• Actual Revenue: $9.18 billion
• Expected Revenue: $9.19 billion
• Beat/Miss: Missed by -$13.90 million
• YoY Revenue Growth: +7.20%

Lithia Motors Announcement Details

• Quarter: Q1 2025
• Date: 4/23/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, April 23, 2025
• Conference Call Time: 10:00AM ET

Lithia Motors (NYSE:LAD) operates as an automotive retailer worldwide. It operates in two segments, Vehicle Operations and Financing Operations. The company's Vehicle Operations segment sells new and used vehicles; provides parts, repair, and maintenance services; vehicle finance; and insurance products. Its Financing Operations segment provides financing to customers buying and leasing retail vehicles. The company sells its products and services through the Driveway and Greencars brand names through a network of locations, e-commerce platforms, and captive finance solutions. Lithia Motors, Inc. was founded in 1946 and is headquartered in Medford, Oregon.

Lithia Motors Q1 2025 Earnings Call Transcript

Key Takeaways

• Strong Q1 performance: Diluted EPS of $7.94 (up 34.8% YoY) and adjusted EPS of $7.66 (up 25.4%) marked the first YoY quarterly adjusted earnings increase since Q4 2022.
• Record revenue growth: Total Q1 revenue reached $9.2 billion, up 7% YoY, driven by market share gains, operational effectiveness and sequential gross margin improvements.
• Diversified ecosystem and “adjacencies”: High-margin businesses—aftersales (40% of gross profit), Driveway Finance (DFC), digital platforms (Driveway.com, GreenCars), fleet management and other services—contributed meaningfully to profitability.
• Improved cost discipline: Adjusted SG&A as a percentage of gross profit declined 120 bps to 68.2% (67% on a same-store basis), aligning with the target 65.5–67.5% range through stringent cost management.
• Capital allocation strategy: Q1 share repurchases totaled $146 million (1.7% of shares), with a balanced approach planned between 30–40% of free cash flow for buybacks and disciplined M&A targeting $2–4 billion in annual acquired revenues.

Presentation

[Operator]

Greetings, and welcome to Lithia Motors First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Jardan Jaramillo.

[Operator]

Thank you. You may begin.

[Jardon Jaramillo, Senior Director - FP&A & Investor Relations at Lithia Motors]

Good morning. Thank you for joining us for our first quarter earnings call. With me today are Brian DeBoer, President and CEO Adam Chamberlain, Chief Operating Officer Tina Miller, Senior Vice President and CFO and finally, Chuck Leitz, Senior Vice President of Driveway Finance. Today's discussion may include statements about future events, financial projections and expectations about the company's products, markets and growth. Such statements are forward looking and subject to risks and uncertainties that could cause actual results to materially differ from the statements made.

[Jardon Jaramillo, Senior Director - FP&A & Investor Relations at Lithia Motors]

We disclose those risks and uncertainties we deem to be material in our filings with the Securities and Exchange Commission. We urge you to carefully consider these disclosures and not to place undue reliance on forward looking statements. We undertake no duty to update any forward looking statements which are made as of the date of this release. Our results discussed today include references to non GAAP financial measures. Please refer to the text of today's press release for reconciliation of comparable GAAP measures.

[Jardon Jaramillo, Senior Director - FP&A & Investor Relations at Lithia Motors]

We have also posted an updated investor presentation on our website, investors.lithiadriveway.com, highlighting our first quarter results. With that, I would like to turn the call over to Brian DeVore, President and CEO.

[Bryan DeBoer, President & CEO at Lithia Motors]

Thank you, Jardan. Good morning, and welcome to our first quarter earnings call. Our Lithia and Driveway teams delivered strong results and continued to charge towards the potential of our integrated ecosystem powered by the strength of our talented people. During the first quarter, we generated diluted earnings per share of $7.94 a 34.8% year over year increase and adjusted diluted earnings of $7.66 a 25.4 percent increase, reflecting disciplined execution and growing contributions from our high margin adjacencies. We are pleased to see our first quarterly year over year adjusted earnings increase since the fourth quarter of twenty twenty two.

[Bryan DeBoer, President & CEO at Lithia Motors]

Notably, we increases each month in the first quarter, demonstrating that these improvements were not just a result of tariffs. While the full earnings power of our design is still ahead, these results underscore the effectiveness of our strategy, serving customers seamlessly across digital and physical channels while building a more profitable, diversified and scalable platform. Adjacencies are now contributing meaningfully to our earnings and delivering measurable gains in engagement and unit volume, now exposing the distinct competitive differentiation of our design and our strategy. Our focus in 2025 is to continue to execute, doubling down on our commitment to building customer loyalty, potential and growth, or LPG. We are confident in our unique ability to deliver sustainable performance, capture market share and accelerate the profitability of our ecosystem through the power of our people and regenerative cash flows.

[Bryan DeBoer, President & CEO at Lithia Motors]

Our foundational strengths enable us to continue our growth as the world's largest auto retailer as we built momentum and continued our pathway to achieving $2 in EPS per $1,000,000,000 in revenue. In the first quarter, Lithia and Driveway grew revenues to a record $9,200,000,000 a 7% increase from Q1 of last year. This growth is a result of our continued focus on improving market share and operational effectiveness. The team's commitment to realizing our potential is also reflected in our same store performance and sequential improvements in gross margin. After a robust start to the year, we're encouraged by the growing opportunities to expand market share, unlock greater profitability across our adjacencies and drive further productivity as we continue to scale the full potential of our ecosystem.

[Bryan DeBoer, President & CEO at Lithia Motors]

These results reflect the strength of our store leaders and their autonomy to drive performance by understanding customers and their own manufacturer supply and pricing dynamics to adapt quickly to local demand. We continue to closely monitor potential tariff impacts and broader shifts in our consumer sentiment. We are encouraged by our OEM partners' response to the evolving tariff landscape, where brands are keeping customer affordability in mind as they work to stabilize pricing. Our diversified omnichannel ecosystem spans retail, digital and fleet channels across North America and The United Kingdom. With offerings that range from new vehicles to twenty year old value autos, we're equipped to meet the customers at any affordability level and have adjusted our mix to be well diversified and perfectly aligned with market dynamics.

[Bryan DeBoer, President & CEO at Lithia Motors]

Beyond retail units, our aftersales business, which represents approximately 40% of our gross profit, is well positioned to benefit from tariff driven market changes, and our financing operations and fleet management businesses are designed to deliver consistent earnings growth despite retail fluctuations. This flexibility and core strength of our model and a key driver of our long term stability is creating a best in class industry profitability equation. These adjacencies continue to deliver meaningful contributions as part of our integrated ecosystem. Finance operations continued to deliver strong profitability in the first quarter, supported by improving net margin and ongoing cost efficiencies. We also made further progress in refining our digital retail strategies with Driveway and Green Cars continuing to bring new customers into our ecosystem and enhance overall engagement.

[Bryan DeBoer, President & CEO at Lithia Motors]

Early returns on our Wills investment remain strong, and we continue to build momentum around the synergies these partnerships unlock across our commercial and retail channels. As we look ahead, we are single-minded in our goals, unlocking the profitability of the life cycle by creating customer loyalty, achieving our potential and unlocking the growth by delivering on our core strength execution. Now turning to our unique and difficult to replicate strategy. The foundation of the LAD omnichannel strategy continues to be our expansive network of stores that reaches customers across North America and The United Kingdom, strengthened by the powerful adjacencies and high performing teams. 2025 is a year of acceleration of our strategy, and in the first quarter, we increased profitability, added new stores in target markets, while optimizing our existing portfolio and integrated key adjacencies into our day to day operations.

[Bryan DeBoer, President & CEO at Lithia Motors]

We operate within one of the largest and least consolidated industries. Our ability to be the most competitive acquirer and an efficient operator is a core strategic advantage, one that positions us to grow profitably. Our model is built to flex and adapt, meeting customer needs across the entire ownership life cycle with transparency, convenience, trust and empowerment. Our omnichannel ecosystem continues to expand our reach and deepen our customer engagement with the My Driveway portal placing more control, visibility and simplicity into the hands of our customers. Digital platforms like Driveway and Green Cars remain key entry points into our ecosystem, drawing in new users and reinforcing lifetime value through retention.

[Bryan DeBoer, President & CEO at Lithia Motors]

These capabilities, combined with disciplined capital management and consistent free cash flow generation, enables us to stay agile and forward looking. As we move through 2025, our ecosystem will continue to unlock performance across channels and geographies, boosting loyalty, expanding market share and supporting our long term target of sustainable profitable growth. Acquisitions remain a core competency, and we continue our disciplined approach to look for accretive opportunities that can improve our network, focusing primarily on The United States. We target a minimum after tax return of 15% and acquire for 15% to 30% of revenues or three to six times normalized EBITDA. Our track record brings a 95% success rate of above target returns and demonstrate that Ladd's growth strategy remains grounded in disciplined execution through strategic acquisition targeting.

[Bryan DeBoer, President & CEO at Lithia Motors]

With our growing capital engine, we're able to deploy our free cash flows to generate the highest returns while remaining flexible to market conditions. We are maintaining an adjusted capital allocation to balance acquisitions and share buybacks equally, especially given the attractive relative valuation of our own shares. In the near term, we remain disciplined as acquisition pricing returns from historical highs, and we continue to evaluate high quality opportunities. The relative values of our own shares supports balanced capital deployment approach. And in the first quarter, we repurchased $146,000,000 or nearly 2% of our outstanding shares at attractive valuations.

[Bryan DeBoer, President & CEO at Lithia Motors]

We continue to evaluate acquisitions and share repurchases, and we'll focus our share buybacks in the near term given market pricing dynamics. With strong cash generation and improving earnings, we maintain the flexibility to pursue this balanced approach, and we continue to target 2,000,000,000 to $4,000,000,000 in annualized acquired revenues in the coming years. Together, these elements form a clear path towards our long term goal of generating $2 in EPS for every $1,000,000,000 in revenue in a normalized environment as outlined by our Slide 14 of our investor presentation. The drivers of that steady state performance are now fully within our control and include the following: first, continue to improve our operational performance by realizing the massive potential in our existing stores second, optimizing our network by acquiring and driving high performance in larger automotive retail stores in the stronger profitability regions of the Southeast and South Central United States and leveraging our digital channels will bring U. S.

[Bryan DeBoer, President & CEO at Lithia Motors]

Market share to 5%. Today, we have a combined market share of a little over 1%. Third, financing of up to 20% of units through DFC. Fourth, through scale, we are driving down vendor pricing with solutions like Pinewood, leveraging corporate efficiencies and lowering borrowing costs as we path towards an investment grade credit rating. Combining these levers with increased market share, we see a pathway to achieving SG and A as a percentage of gross profit in the mid-fifty percent range.

[Bryan DeBoer, President & CEO at Lithia Motors]

Fifth, maturing contributions and growing synergies from our omni channel horizontals, including fleet management, DMS software, charging infrastructure and captive insurance. And finally, delivering ongoing returns of capital to shareholders through increased share buybacks and dividends. We are uniquely positioned to scale our mobility ecosystem and deliver more impactful customer experiences across the ownership journey. With the foundational elements of our strategy in place, our focus is centered on operational execution. We're confident in our ability to elevate performance and continue setting the standard for the industry.

[Bryan DeBoer, President & CEO at Lithia Motors]

Before I walk through our key financial highlights, I want to take a moment to recognize Adam Chamberlain, who will be transitioning from his role as our Chief Operating Officer to become CEO of Mercedes Benz USA. Adam has made a lasting impact on our organization, strengthening the speed of our operations, elevating our customer experience and driving performance. His next chapter reflects the strength of our partnership with Mercedes Benz, and we're proud to see him step into this important role, and we look forward to what we'll achieve together. On a personal note, I'm excited to continue working closely with our operational leaders and execute at a high level, advancing our mission, Growth Powered by People. Thank you, Adam.

[Bryan DeBoer, President & CEO at Lithia Motors]

We're really going to miss you. Onto our operating results and how we're driving performance at the store and departmental levels. Our performance this quarter marked another meaningful step forward. We delivered year over year growth in new vehicles aftersales and experienced continued sequential improvements in used autos, particularly in the value auto segment. These improvements were all supported by continued strength in SG and A execution coming off the back of our sixty day plan.

[Bryan DeBoer, President & CEO at Lithia Motors]

As we continue the year, we remain focused on our core drivers of profitability, delivering customer optionality to grow market share and maintaining disciplined cost control. Operational success is guided and inspired by our Lithia Partners Group, or LPG. And for 2025, I'm happy to announce and include our store departmental leaders in this recognition as well. Again, congratulations to all 2024 winners as well. Turning to our same store sales performance.

[Bryan DeBoer, President & CEO at Lithia Motors]

Total revenues increased by 2.58%, primarily due to sequential strength across all business lines that was partially offset by a normalization of GPUs. Total unit sales increased by 1.5% year over year, while total gross profit per unit of $4,301 was down $144 compared to the same period last year. New vehicle units increased 3.6% year over year with continued strength in import manufacturers. Our front end GPUs were 3,046, consistent sequentially. Used vehicles were down slightly at 0.4% year over year with a considerable quarter over quarter sequential improvement.

[Bryan DeBoer, President & CEO at Lithia Motors]

Value auto sales were particularly impressive with a 38.8% improvement from last year. Cores were down 9.3%, where procurement remains a focus and certified units were up slightly at 0.7%. Front end GPUs for used vehicles were stable year over year at eighteen seventy seven. Used autos are foundational to our model and expect to see ongoing positive trends in the quarters ahead. F and I growth was also particularly strong in the first quarter.

[Bryan DeBoer, President & CEO at Lithia Motors]

We delivered 3.4% year over year growth in same store gross profit and $18.81 dollars on a per unit basis. As a reminder, this is the first quarter of Pendragon's comparatively low F and I impacting sequential same store sales results. Despite this headwind, this was a $35 increase year over year and reflects the continued opportunity in this high throughput area. Our aftersales performance was also a key driver this quarter with same store revenue up 2.4%, delivering an after sales gross profit increase of 7.5%. Adjusting for sales days, after sales revenue was actually up over 4%.

[Bryan DeBoer, President & CEO at Lithia Motors]

Warranty work showed another strong quarter with gross profits increasing 19.7% year over year. Our team is focused on creating durable customer retention through personalized experiences and effectively managing the ongoing demand for this high margin work. Now turning to inventory, where we realized significant improvements towards our 60 plan's targeted inventories levels in the first quarter. New vehicle DSO decreased from fifty nine days in Q4 to forty three days at the end of this quarter, while used vehicle DSOs decreased from fifty three days to forty five days. Absolute inventory balance decreased by 163,000,000 and we are now encouraged by the savings we are seeing in our floor plan expense, which decreased 6% year over year.

[Bryan DeBoer, President & CEO at Lithia Motors]

Our strong start to the year reflects the power of our ecosystem and the focus of our teams. As we continue executing on our strategy, we are excited by the opportunity to drive unparalleled growth and long term value. With that, I'd like to turn the call over to Tina, who will walk through our financial results in more detail.

[Tina Miller, Senior VP & CFO at Lithia Motors]

Thank you, Brian. The momentum across our operations is creating a strong foundation to accelerate our value, particularly through our SG execution, increasingly profitable financing operations, disciplined capital allocation and continued focus on balance sheet strength. We're encouraged by our SG and A performance to start the year, building on the improvements we promised and delivered as part of the sixty day plan in the second half of twenty twenty four. Our adjusted SG and A as a percentage of gross profit was 68.2% during the quarter, a 120 basis point decline from the prior year and 67% on a same store basis, a 150 basis decline. While we are pleased to see continued progress, we remain focused on disciplined cost management every day.

[Tina Miller, Senior VP & CFO at Lithia Motors]

We continue to see opportunities to enhance efficiencies across the business with targeted efforts underway in both North America and The U. K. As we move through the year, we believe we're on track to achieve same store SG and A in the range of 65.5% to 67.5% as we take continued steps to ignite the full potential of our operating model. Our team's relentless focus on delivering exceptional customer experiences and driving performance through people was on full display this quarter. We are proud of the progress we've made to start 2025 with strong execution across operations and clear momentum in key areas of the business.

[Tina Miller, Senior VP & CFO at Lithia Motors]

As we look ahead, we remain focused on deepening customer loyalty, unlocking store and departmental potential and scaling growth across our ecosystem. Starting with our financing ops segment led by DFC, we delivered another quarter of profitability with income of $12,500,000 compared to a loss of 1,700,000.0 in the same period last year. This performance reflects the continued maturity of our portfolio, improved capital efficiency and continued maturing in our securitization performance. Following expect a consistent earnings trajectory in 2025 as we balance yields, growth and risk. DSC originated $623,000,000 in loans during the quarter, a 24% sequential increase, bringing the total portfolio balance to over 4,000,000,000 Portfolio quality remained strong, supported by disciplined underwriting and a focus on higher credit tier originations with new FICO scores expected to average seven thirty in 2025.

[Tina Miller, Senior VP & CFO at Lithia Motors]

The net interest margin continued to be expanded, increasing 117 basis points year over year and seven basis points sequentially. NIM expansion increases profitability and adds flexibility to continue scaling the platform as we move toward our goal of 20% penetration. These results demonstrate the strength of our financing platform and its growing contribution to our long term earnings potential. Overall, our financing operations adjacency has delivered high performance growth and is a key element of our $2 of EPS for every $1,000,000,000 of revenue target, as each loan originated by DFC contributes up to three times more profitability than traditional indirect lending. We remain confident in this segment's segment's long term earnings growth and expect increasing profitability as we increase penetration and strengthen our track record.

[Tina Miller, Senior VP & CFO at Lithia Motors]

Now moving on to our cash flow performance and balance sheet. We reported adjusted EBITDA of $402,100,000 in the first quarter, a 17.1% increase year over year driven by increased earnings and decreasing floorplan expense. During the quarter, we generated free cash flows of $276,000,000 Our capital deployment strategy focuses on the efficient allocation of our businesses' regenerative cash flows, preserving the quality of our balance sheet while supporting our growth initiatives and allowing us to respond opportunistically to a complex environment. This quarter, we completed a couple of acquisitions, deploying $75,000,000 for those transactions, but were more heavily weighted to share buybacks to be opportunistic with the fluctuating market. In the first quarter, we repurchased 1.7% of our outstanding shares at a weighted average price of $329 $687,000,000 remains available under our share repurchase authorization.

[Tina Miller, Senior VP & CFO at Lithia Motors]

Looking ahead, we will continue to remain agile in reallocating capital where it generates the highest returns. We expect to allocate 30% to 40% of free cash flows to our share repurchases while continuing a disciplined approach to M and A opportunities. Additionally, capital expenditures have moderated and are now primarily directed toward network optimization and meeting OEM facility requirements. We ended the quarter with a net leverage of 2.5 times in line with our long term target of two to three times and well below our bank covenant requirement of 5.75 times. These metrics adjusted for the impact of floor plan debt collateralized by vehicle inventory, which is unique to our industry and integral to our operations.

[Tina Miller, Senior VP & CFO at Lithia Motors]

The industry treats the associated interest as an operating expense and EBITDA and excludes the debt from balance sheet leverage calculation. Similarly, we exclude ABS warehouse lines and issuances to capitalize DFC from our leverage calculations. While we opportunistically allocated capital during the quarter, we maintain our long term focused financial discipline to support our planned growth. Our strategy remains focused on delivering strong, consistent growth and top tier shareholder returns through the continued expansion of our omnichannel platform. With the right team, robust tools and a solid financial foundation, we are positioned to scale profitably across both our core operations and adjacencies.

[Tina Miller, Senior VP & CFO at Lithia Motors]

As we look ahead, our diverse and capable teams are united by a commitment to exceptional customer experiences and are well equipped to unlock the next phase of growth in 2025 and beyond. This concludes our prepared remarks. With that, I'll turn the call over to the operator for questions. Operator?

[Operator]

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you'd like to remove your question from the queue.

[Operator]

Our first question comes from Ryan Sigdahl with Craig Hallum Group. Please proceed with your question.

[Ryan Sigdahl, Partner & Senior Research Analyst at Craig-Hallum Capital Group LLC]

Hey. Good morning, guys. Wanna start just at a higher level kinda what you're seeing from a current tariff environment. If you wanna talk monthly trends throughout the quarter and then into April, that might be helpful, both from a demand and GPU. And then kind of second part to that, how you view your higher inventory levels relative to some of your peers, how that's positioned you in this environment, again, kind of more into April from that question standpoint.

[Bryan DeBoer, President & CEO at Lithia Motors]

Sure, Ryan. Good morning. This is Brian. I think we're very fortunate that with tariffs, we sit quite nicely. We have over 45% of our inventory that's going to be where the current tariffs are sitting.

[Bryan DeBoer, President & CEO at Lithia Motors]

Obviously, we know that they're still a little bit in limbo. But where the current tariffs are sitting, we have about 45% of our inventory that's not impacted. Okay? Which is, I believe in most of the major retailers, that's probably the most diversified and the least impacted, which we're pretty excited about that. I think more recently, as we think about moving forward, our inventories have come down a lot.

[Bryan DeBoer, President & CEO at Lithia Motors]

I mean we dropped our inventory in both new and used almost ten day supply quarter over quarter, which is a good step forward. And I think when we think about go forward, it's more about store leadership staying dynamic and specifically focusing on their brand and their market, okay? And we've been pretty successful that way. You also had asked the question about what happened sequentially in the quarter, okay? We were actually motivated by a strong January, a strong February and then early March is when the tariff discussion started and it came out strong as well.

[Bryan DeBoer, President & CEO at Lithia Motors]

So it was consistent throughout the quarter and we're pretty confident that looking into Q2, we've got good foresight into what our inventories and our costs are. And most manufacturers have stabilized pricing for some level, at least through the 2025 model year, and we'll see what happens beyond. And hopefully, there's some relief to the current situation given.

[Ryan Sigdahl, Partner & Senior Research Analyst at Craig-Hallum Capital Group LLC]

Helpful. Staying on the tariff topic, any way to put kinda guardrails? And you did this several years ago, kind of with the SAAR, just the levers you can pull and kind of the earnings power and, up down from a leverage standpoint. But, if ultimately kind of in the back half of this year, next year, we go to a 14 or 15,000,000 SAAR, prices stay higher, affordability, etcetera, etcetera. I guess any way to help us kind of from an earnings power standpoint and what that might mean for you guys?

[Bryan DeBoer, President & CEO at Lithia Motors]

Ryan, I think it's important to remember where our product mix is and that we've designed our entire ecosystem around affordability. So having 20 year old cars, and you saw that we had a 39% increase in our value auto sales year over year, that's a big increase. And it shows the strength of the model that we're a little less concerned about what the specific terrace is, so long as they stay within the ecosystem. So create affordable products from top to bottom, whether it's an after sales, new cars or used cars, and stay focused on what we can control. Because ultimately, we do have a fairly adaptable model because of that affordability range.

[Bryan DeBoer, President & CEO at Lithia Motors]

And remember this, Driveway.com, GreenCars, and DSC help massively in terms of how we think about diversification. And now that DSC is turning some pretty good profits, that takes out some of the volatility as we look at things. I would note one other thing for everyone. It's important to note that the Pinewood market valuation change was $27 So we were at $7.93 which was considerably ahead of consensus, okay? And that's something that, to some extent, is outside of our control.

[Ryan Sigdahl, Partner & Senior Research Analyst at Craig-Hallum Capital Group LLC]

Helpful. Thanks, Brian. Estimates also walked higher over the last week or two. Would have beat stale ones. So thanks.

[Ryan Sigdahl, Partner & Senior Research Analyst at Craig-Hallum Capital Group LLC]

Good luck, guys.

[Bryan DeBoer, President & CEO at Lithia Motors]

Okay. Thanks.

[Operator]

Our next question comes from John Murphy with Bank of America. Please proceed with your question.

[John Murphy, Managing Director at Bank of America Merrill Lynch]

Good morning, everybody. Hey, This is Brian. Just to stay on tariffs just for a second from two different prongs. First, what kind of communication have you received from your factory partners? And have you seen any impact to the M and A environment as a result of the uncertainty around tariffs?

[Bryan DeBoer, President & CEO at Lithia Motors]

Maybe I'll start with the latter. We haven't seen a big impact in the M and A environment. However, it does it has appeared to be softening over the last, I would say, three to four months. But specific to the March, we haven't seen any major changes. In terms of communications from our manufacturers, I might let Adam jump in on that real quickly.

[Adam Chamberlain, Executive VP & COO at Lithia Motors]

Hey, John. Good morning. I think we've seen great as far as the manufacturers know exactly what they're dealing with, because obviously it's an extremely volatile situation, John. I think we've seen clear communication. We had some early communications around guaranteeing holding prices through certainly for most OEMs, it's through May.

[Adam Chamberlain, Executive VP & COO at Lithia Motors]

So that really takes care of the 2025 model years. And obviously, in that context, we're also kind of bottom of the funnel, right? So the OEMs have got to deal with their support and help if we can. But ultimately, they've got to deal with the administration and thinking about how they allocate their resources and their investments to manage tariff situation. So we sit kind of a ways below that, but we've had really good clarity and leadership from the majority of our OEM partners as it relates to that.

[Adam Chamberlain, Executive VP & COO at Lithia Motors]

I think the other point is our job, as Brian said, is just to be disciplined moving forward. So our stores are being disciplined in terms of the way that they manage their operations. And I think we demonstrated last year, we can adapt and flex pretty good when we need to. So that's how I think about it, John. Thank you.

[John Murphy, Managing Director at Bank of America Merrill Lynch]

That's helpful. And Brian, just a second question. When we think about sort of the adjacencies, particularly DFC and the benefits you'll get on SG and A over time, Is there kind of a notion that you might lower your expectation for front end gross to take more market share over time? Kind of how do you balance that out? I mean, getting UIOs is mission critical for parts and service.

[John Murphy, Managing Director at Bank of America Merrill Lynch]

So just curious how you think about that full circle equation. Does this allow you to take more market share and then feed the beast at the back end and grow earnings even stronger? And just kind of how do you balance that all out?

[Bryan DeBoer, President & CEO at Lithia Motors]

Great question, John. And I think that our original thesis on the design was that if we're able to create transparent, simple experiences for our consumers, then there's actually a price inflection upward, not downward. Okay? We already buy cars and our cost of vehicles are at a cost advantage of about 500 to $700 over the used only retailers. Important to note.

[Bryan DeBoer, President & CEO at Lithia Motors]

But we also give away that 500 to $700 in terms of price to market of what we sell cars for, because we negotiate away that gross profit in lieu of getting more customers financed. Okay? So I would say if anything, and today we're looking at a 4,100 to $4,300 total vehicle gross profit, okay? That's down a couple of hundred bucks primarily because of the mix change in Pendragon that rolled in this quarter. If you remember, it was $4,300 to $4,500 prior, okay?

[Bryan DeBoer, President & CEO at Lithia Motors]

We also did elevate our new vehicle gross profit because our mix is so much better and has so much more luxury as well as Southeast exposure, which is higher gross profits. So we raised our expectations internally 2,600 to $2,800 on new vehicle gross profit. So I would say if we're looking out four to five years, I believe that there's opportunity to grow our used vehicle gross profit, which is the biggest impact of the Driveway ecosystem or green cars sales. And it's primarily because you're getting more eyeballs on each and every car in that price inflection point that today, we don't have all those eyeballs.

[John Murphy, Managing Director at Bank of America Merrill Lynch]

Okay. If I can sneak in one last one. That's helpful. Keenan, on the ABS your deals are doing with DFC. I'm just curious what kind of receptivity you're seeing in the market?

[John Murphy, Managing Director at Bank of America Merrill Lynch]

What market conditions are currently like? And over time, is there opportunity to do larger and larger deals as you get more seasoned in the market?

[Chuck Lietz, SVP - Finance at Lithia Motors]

Hey, this is Chuck. Right now, we had a very successful ABS issuance in the first quarter and that went really well with a number of our tranches oversubscribed. Right now though, the ABS term market is rather frothy and choppy and that's just a reflection of where the overall capital markets are going. We do expect that to stabilize though going forward and we'll be very diligent on making sure that when we do launch our next issuance, it will be at a point in time that is optimal for our business. So we don't see any long term impact on our capital structure for DFC.

[John Murphy, Managing Director at Bank of America Merrill Lynch]

But fair to say there's plenty of room in the warehouse facility?

[Chuck Lietz, SVP - Finance at Lithia Motors]

Absolutely. Plenty of room on the warehouse facility to absorb that if there is choppiness in the TAR market.

[John Murphy, Managing Director at Bank of America Merrill Lynch]

Thanks so much guys. Congrats, Adam. Thank you, guys.

[Bryan DeBoer, President & CEO at Lithia Motors]

Thanks, John. Thanks, John.

[Operator]

Our next question comes from Rajat Gupta with JPMorgan. Please proceed with your question.

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

Great. Thanks for taking the question. And just wanted to convey my congrats to Adam as well. I had a first question just on SG and A. The sequential pickup on SG and A to gross was a little higher than seasonality if we exclude The UK.

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

Curious if you could unpack that for us a little bit because it looks like the SG and A dollars went up more than the gross profit dollars relative to the fourth quarter. If you could just elaborate on that a little bit would be helpful. And also just a clarification, the Pinewood zero point two seven dollars charge, that all of that was flowing to other income, am I right? If not, if you could clarify that as well, would be helpful. And I have a quick follow-up.

[Tina Miller, Senior VP & CFO at Lithia Motors]

Hi, Rajat. This is Tina. Just on your Pinewood question, yes, the impact of the fair market value adjustment on Pinewood does flow through others. You can capture that and see that in that line. It was a pretty decent impact when you adjust for that.

[Tina Miller, Senior VP & CFO at Lithia Motors]

Our overall EPS performance was really strong. From an SG and A perspective, I think most of it is really driven by seasonality. When you look at the year over year performance on SG and A, I think we're really happy with it. Same store improved by 150 basis points on a consolidated 120 basis points, one of the first quarters where we're seeing that decline in SG and A as a percentage of gross profit. So really the continued discipline from our sixty day execution last year and continued flow through of that discipline by our stores, It'll be something that we continue to watch obviously and perform in throughout the 2025.

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

Got it. And you think about the path from that 68% within your guidance range, like say the midpoint, is there like more cost reduction to come? Or is this just more about just leveraging the gross profit? Any areas within the gross profit bucket like parts and services other areas that there's some opportunity that we should be baking in? Obviously, we have the full year guidance ranges out there, but it just seems like a pretty decent size improvement baked in for the remainder of the year get to your SG and A guidance, especially with the new car GPUs expected to come down through the course of the year?

[Bryan DeBoer, President & CEO at Lithia Motors]

Rajat, this is Brian. Maybe I could elaborate a little bit as well. I think when we think about the original sixty day plan that's now part of the everyday plan, our field and our operational leaders, they understand that our goal is to drop about seven basis points out of the model each and every month starting in the second half of this year. So now that's on our pathway to the 50 the mid-fifty SG and A range. Okay?

[Bryan DeBoer, President & CEO at Lithia Motors]

So it's important to remember about how we think about things. But again, this isn't going to happen overnight. I mean, we get benefits all over the ecosystem, including the eventual transition into the Pinewood software system, which is a 30,000,000 to $40,000,000 savings. We took out another 30,000,000 to $40,000,000 out of our current tech stack with what George did and what the stores did with vendor pricing. And now we're starting to really impact our interest costs, which obviously isn't part of SG and A, but it's a big part of our cost structure and it's the third largest cost in our vehicle department.

[Bryan DeBoer, President & CEO at Lithia Motors]

So I think that where we ended up with the quarter, we're comfortable with. Our Q1 and Q4 typically is at the higher end of the range and our Q2 and Q3 are typically in the lower end of the range. It's primarily based on the fact that we have a fair amount of our businesses in the Snow Belt. Okay? So hopefully that helps you, Rajat.

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

Got

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

it. Thank you. Appreciate it. I'll get back in queue. Likewise.

[Operator]

Our next question comes from Kate McShane with Goldman Sachs. Please proceed with your question.

[Mark Jordan, Vice President - Equity Research at Goldman Sachs]

Good morning. This is Mark Jordan on for Kate McShane. Just thinking about the tariff on imported parts, how do you see that impacting your after sales business, I guess, with respect to margins? And would you expect to see some level of deferred maintenance as customers avoid some noncritical repairs?

[Bryan DeBoer, President & CEO at Lithia Motors]

Mark, thanks for your questions. I think we're really we've thought through the after sales repercussions of higher tariffs. We're fortunate that most customers do need to repair their cars. And whether it's maintenance or whether it's hard line repair, that's a positive thing for us. So I think when you think about the parts versus labor equation, we did have a pretty good lift this quarter in terms of labor and we're up over 57% margin, which was quite nice and a little higher than what we typically expected in our forecast running at 55% to 56% over the last few quarters.

[Bryan DeBoer, President & CEO at Lithia Motors]

But I really believe there is no big option to defer, okay? Especially when we, in our aftersales businesses, deal with affordability. So we're the same price as the Jiffy Lubes of the world and the AutoZones of the world. And we sell aftermarket parts and we sell OEM parts. And as such, we want to keep those customers in the ecosystem.

[Bryan DeBoer, President & CEO at Lithia Motors]

So I think the impact in the aftersales business from tariffs, whatever they may end up being, is pretty minimal.

[Mark Jordan, Vice President - Equity Research at Goldman Sachs]

Great. And then one last follow-up. Just on capital allocation, share repurchase is obviously a bigger part of the mix in the quarter. It looks like it might be in the near term. But as we think about your acquired revenue targets, is the 2,000,000,000 to $4,000,000,000 still in the cards for the year?

[Bryan DeBoer, President & CEO at Lithia Motors]

Mark, this is Brian again. I think that we've specifically said that it's probably going to be closer to $2,000,000,000 this year. And you can see it in our share buybacks at $210,000,000 about 2% of our float just in the quarter. That's a big amount of buybacks and obviously that brings it down. In the prepared remarks, I did mention that it's 2 to $4,000,000,000 going forward.

[Bryan DeBoer, President & CEO at Lithia Motors]

And then again, we're still looking for that more major meaningful acquisition at some point in our lives and believe that the industry can be consolidated and one plus one can truly equal three.

[Mark Jordan, Vice President - Equity Research at Goldman Sachs]

Great. Thank you very much.

[Bryan DeBoer, President & CEO at Lithia Motors]

Thanks, Mark.

[Operator]

Our next question comes from Jeff Lick with Stephens. Please proceed with your question.

[Jeff Lick, Managing Director & Equity Research - Consumer & Auto Ecosystem at Stephens Inc]

Good morning guys. Congrats on a nice Q1. Jeff. I was wondering if you could drill down a little bit on used specifically the value used. Just starting off with GPU at seventeen sixty nine which is below your guidance.

[Jeff Lick, Managing Director & Equity Research - Consumer & Auto Ecosystem at Stephens Inc]

Was there some bit of just purging inventory? I know there's a lot of things you wanted to get right. If you could just talk about any of that, especially as we get into the tariff world. My perception is that your heritage of doing the value autos will actually maybe benefit a little bit. So any color there?

[Bryan DeBoer, President & CEO at Lithia Motors]

Yeah. I don't think there's any sub story to the $17.69. I will say this. It takes us typically about six months to gain initial traction on teaching our new partners or new stores to sell and keep off brand cars as well as keep the older cars or these value auto cars. So Adam and the teams and our presidential teams and vice president teams and field teams have done a darn nice job understanding that we don't wholesale cars, okay?

[Bryan DeBoer, President & CEO at Lithia Motors]

We keep everything to bring consumers into the ecosystem at a lower price point or possibly as a cash buyer because as we know, value auto cars don't have a lot of financing. It's about 50% cash buyers and about 50% finance, which has a certified car is about 90% finance and about 10% cash, okay? So it's not that you're looking for buyers that aren't able to get finance or has poor credit. These are cash buyers that are very thrifty with very high demand cars that move quite quickly through the system. And our stores are getting it.

[Bryan DeBoer, President & CEO at Lithia Motors]

And I'd send the challenge out to everyone that if you're not at 40% or better in terms of value auto sales, it's the one bucket that does not have an impact from lower SARs, okay, lower SAR from previous years, okay? And core is now just starting to trickle in the 2021 and 2020 model years, which is having a little bit of inventory impacts on our three to nine year old vehicles. So important to remember, that is important of who Lithia is. All affordability levels, and most importantly, these value and core products are where we really shine. And Jeff, I think you know this.

[Bryan DeBoer, President & CEO at Lithia Motors]

The GPUs are somewhat similar. Important to remember. But the really important thing to remember is our average ASP on a value auto car is about $14,500 Okay? Versus a certified that's pushing 30. Okay?

[Bryan DeBoer, President & CEO at Lithia Motors]

So you've got that. And on top of this, the value auto car turns at two to four times faster than a certified car. So when you're looking at utilization of capital, you're talking about eight times better return on an annual basis. So really important part of the model. And I think most people are starting to figure that out.

[Bryan DeBoer, President & CEO at Lithia Motors]

And we're fortunate that we're so far up funnel that we're able to continue to get those great cars and deciding now not to wholesale them.

[Jeff Lick, Managing Director & Equity Research - Consumer & Auto Ecosystem at Stephens Inc]

And just a quick follow-up on your comment about it taking six months to get initial traction. I'm just curious, is that the stores you've acquired, say, over the last four or five years that really haven't just gotten up to speed on the Lithia heritage? Or were there some of your traditional

[Bryan DeBoer, President & CEO at Lithia Motors]

Great So

[Bryan DeBoer, President & CEO at Lithia Motors]

if you recall in our previous calls, we bought so much bulk. And the lift of GPUs made everyone think that we were doing wonderful. So it's really hard to convince people that they should do more. So I really believe that it was about three to five quarters ago where people started to listen and go, wow, there's opportunities here. And it is mostly new cars and new businesses that are finally gaining the traction that we're really excited that we moved from a minus 5% used car same store sales last quarter to basically flat, okay?

[Bryan DeBoer, President & CEO at Lithia Motors]

And those days of mid to high single digits are in our future. And I mean, we're really looking at a 5% more longer term number or better in terms of used cars sales, especially when you've got green cars and driveways that are bringing in 97% new customers, and it's truly limitless in who we can touch and find.

[Operator]

Awesome.

[Jeff Lick, Managing Director & Equity Research - Consumer & Auto Ecosystem at Stephens Inc]

Congrats again, and, look look forward to talk to you.

Participants

Executives

• Jardon Jaramillo, Senior Director - FP&A & Investor Relations
• Bryan DeBoer, President & CEO
• Tina Miller, Senior VP & CFO
• Adam Chamberlain, Executive VP & COO
• Chuck Lietz, SVP - Finance

Analysts

• Ryan Sigdahl, Partner & Senior Research Analyst at Craig-Hallum Capital Group LLC
• John Murphy, Managing Director at Bank of America Merrill Lynch
• Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co
• Mark Jordan, Vice President - Equity Research at Goldman Sachs
• Jeff Lick, Managing Director & Equity Research - Consumer & Auto Ecosystem at Stephens Inc