Lithia Motors Q2 Earnings Call Highlights

Key Points

• Record Q2 revenue reached $9.8 billion, while adjusted diluted EPS rose 9% year over year to $10.03 despite a 1.6% same-store revenue decline and a difficult comparison with Q2 2025.
• Used-vehicle profitability improved, with gross profit per unit rising to $2,019, while after-sales remained the largest profit contributor as gross profit increased 3.1% and margins expanded to 59.2%.
• Driveway Finance more than doubled financing-operations income to $37 million, and Lithia returned over $560 million to shareholders in the first half through buybacks and dividends; the company also plans a North American rollout of Pinewood.AI to reduce technology costs.

Lithia Motors NYSE: LAD reported record second-quarter revenue of $9.8 billion and adjusted diluted earnings per share of $10.03, up 9% from a year earlier, as used-vehicle profitability, after-sales margins and Driveway Finance Corporation income supported results in what management characterized as a dynamic market environment.

President and Chief Executive Officer Bryan DeBoer said the company’s diversified operating model contributed across its businesses during the quarter. Same-store revenue declined 1.6% and total gross profit fell 2.7% against what he described as the company’s toughest comparison of the year, following an exceptionally strong second quarter of 2025. However, total vehicle gross profit per unit rose to $4,119, an increase of nearly $200 from the first quarter.

Used Vehicles and After-Sales Support Profitability

Used-vehicle gross profit increased 1.2% year over year, helped by a $339 sequential increase in used-vehicle gross profit per unit to $2,019. DeBoer attributed the improvement in part to the company’s dynamic-pricing efforts and said Lithia was working to balance sales volume and margins.

Management said it expects used-vehicle volumes to range from flat to up mid-single digits during the second half, with stores targeting 3% to 5% growth. DeBoer noted that certified pre-owned vehicles accounted for more than 40% of the company’s used-vehicle sales mix during the quarter. He also identified older vehicles as an opportunity, saying vehicles more than nine years old represent 63% of U.S. used-vehicle sales, while only 17% of Lithia’s mix falls in that category.

New-vehicle revenue declined 1.5% as unit sales fell 2.2% on a same-store basis. New-vehicle gross profit per unit was $2,718, essentially flat from the first quarter and marking the third straight quarter of stability, according to DeBoer. Imports posted 5% growth, while domestic and luxury sales declined 7% and 4%, respectively.

After-sales remained the company’s largest gross-profit contributor, accounting for 42.2% of gross profit. After-sales gross profit increased 3.1% on revenue growth of 1%, while margins expanded 120 basis points to 59.2%. Customer-pay gross profit grew 2.6% and warranty gross profit rose 5.4%.

DeBoer said the margin gains reflected a greater labor mix as vehicle propulsion systems diversify, along with longer warranty periods. He added that electrified vehicles represented nearly 55% of Lithia’s new-vehicle sales in the quarter, including hybrids that accounted for 46.5% of total new-vehicle sales.

Cost Actions and Pinewood.AI Rollout

Adjusted selling, general and administrative expense as a percentage of gross profit was 68.6%, an improvement of 290 basis points from the first quarter. Chief Financial Officer Tina Miller said same-store SG&A dollars declined year over year, while personnel expense, the company’s largest cost category, improved by 30 basis points as a percentage of gross profit.

DeBoer said the improvement reflected structural cost changes rather than one-time cuts. Those actions include combining roles, extending leaders across multiple locations and departments, consolidating back-office functions, automating work and renegotiating vendor contracts.

North American SG&A was 66.2%, and DeBoer said June marked the company’s first month in which SG&A declined year over year, improving by nearly 60 basis points. Lithia continues to target SG&A below 60% of gross profit.

In the United Kingdom, gross profit rose 12% and adjusted pretax income increased 78%. SG&A as a percentage of gross profit improved 200 basis points, with about half of that improvement driven by Pinewood.AI solutions, DeBoer said. Used-vehicle gross profit in the U.K. rose nearly 33%, while new-vehicle units increased 16%.

The company plans to begin rolling out Pinewood.AI in North America later this year. DeBoer said the technology and related vendor changes could reduce overall technology-stack costs by 20% to 50%, although the transition will involve a period of redundant systems. He said the company does not expect material operational disruption, citing its experience implementing the platform across 150 U.K. stores.

Management previously estimated that Pinewood.AI could save 447,000 annualized hours in the U.K., equivalent to roughly $10 million to $11 million. DeBoer said the company expects to realize at least half of those hours by year-end and sees a potentially larger opportunity in North America because its expense base there is substantially larger.

Driveway Finance Expands Earnings Base

Driveway Finance Corporation, Lithia’s captive financing operation, reported financing-operations income of $37 million, more than doubling its profitability from the prior year. Record originations totaled $884 million, while net interest margin expanded 20 basis points to 4.8%.

Managed receivables surpassed $5 billion, and North American financing penetration reached 18%, moving toward the company’s long-term target of at least 20%. Miller said average origination FICO scores were 748 and front-end loan-to-value ratios held at 96%.

Senior Vice President of Driveway Finance Corporation Chuck Lietz said provisioning needs declined as credit performance remained strong. He cited improvements in 30-plus-day delinquencies across credit categories, while noting that a small adjustment to provisions during the quarter was immaterial. Lietz said DFC expects to maintain similar profitability in the second half, though seasonality could affect quarterly results.

Cash Flow, Buybacks and Acquisitions

Adjusted EBITDA totaled $445 million, down 2% year over year. Adjusted cash flow from operations was $228 million, up 76% from the prior year. For the first half, adjusted cash flow from operations reached $609 million after accounting for a one-time used-vehicle floor-plan benefit in the first quarter.

Lithia repurchased $242 million of stock during the quarter at an average price of $284 per share, retiring about 4% of shares outstanding. Its share count was 17% lower than a year earlier. The company also raised its quarterly dividend 23% to $0.70 per share, and said it returned more than $560 million to shareholders through repurchases and dividends during the first half.

Management said it acquired businesses representing $765 million in annual revenue during the first half and divested $120 million of underperforming revenue. DeBoer said the company expects to maintain a balanced capital-allocation approach, potentially directing roughly one-third of capital toward buybacks, one-third toward acquisitions, and the remainder toward dividends and internal investment.

The company continues to target acquisition prices of 15% to 30% of revenue, or three to six times normalized EBITDA. DeBoer reiterated Lithia’s longer-term objective of generating $2 in earnings per share for every $1 billion of revenue.

About Lithia Motors (NYSE:LAD)

Lithia Motors, Inc is an American automotive retailer headquartered in Medford, Oregon. Founded in 1946 as a small auto body and glass shop, the company has grown through organic expansion and strategic acquisitions to become one of the largest automotive retail networks in North America. Lithia operates dealerships across the United States and Canada, offering a broad portfolio of new and pre-owned vehicles from more than 40 different manufacturers.

The company's core business activities include vehicle sales, financing, insurance, parts and service.

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