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As one of the largest automotive retailers in the U.S., Lithia operates 180 stores in 18 states with a goal to be nationwide by 2025.

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Medford, Ore.-based Lithia operates auto dealerships in 18 U.S. states, making it the third largest automotive retailer in the nation. Shelter-in-place policies resulting from the novel coronavirus pandemic are expected to severely impact Lithia's business in 2020 as the company rethinks how consumers want to buy vehicles.

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Lithia Motors is an automotive retailer that sells new and used vehicles and parts, and provides vehicle repair and maintenance services in the U.S., the U.K., and Canada. Lithia also offers vehicle financing and insurance products, allowing customers to lease retail vehicles; it offers fleet management solutions as well. Lithia was founded in 1946 and is based out of Medford, Ore.

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Lithia Motors (LAD): Company Profile, Stock Price, News, Rankings

legacy

Lithia Motors

lithia motors

and welcome to the Lithia Motors Fourth Quarter twenty twenty four Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jarden Jaramillo, Senior Director, Investor Relations.

Good morning. Thank you for joining us for our fourth quarter earnings call. With me today are Brian DeBoer, President and CEO Adam Chamberlin, 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.

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.

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

Thank you, Jardan. Good morning and welcome to our fourth quarter earnings call. Our Lithium Driveway teams continue to deliver strong results demonstrating the power of our integrated and scalable mobility ecosystem and the strength of our talented people. During the fourth quarter, we generated adjusted diluting earnings per share of $7.79 Though the earnings power of our ecosystem and design is just beginning to reveal its potential, these results underscore the effectiveness of our strategy to serve our customers seamlessly across digital and physical channels, leverage highly profitable adjacencies, while remaining grounded to our disciplined execution. Our ability to align our people, platform and processes has enabled us to maintain momentum in unlocking our potential by increasing market share and driving differentiated operational efficiencies.

Our focus on building customer loyalty through our diversified business model continues to drive profitability and strengthen our market position. Investments in our adjacencies are now contributing meaningfully to our earnings trajectory. Our omni channel ecosystem has driven substantial improvements in customer engagement and unit sales, further reinforcing Labs' effectiveness. Looking ahead, our focus remains on loyalty, potential and growth. Through disciplined execution and strategic investments, we are confident in our unique ability to deliver sustainable performance, capture market share and unlock the profitability of our ecosystem.

With our foundational strengths firmly in place to continue our growth as the world's largest auto retailer in 2025 and beyond, we are well positioned to build our recent momentum and continue our path to achieving $2 of EPS per $1,000,000,000 in revenue. Now on to key results for the fourth quarter. Lithium driveway grew revenues a record $9,200,000,000 a 20% increase from Q4 of last year. We are pleased to see our first quarter year over year operating profit increase in nine quarters. This increase is a result of continued market share gains and our disciplined cost management efforts, which drove the full realization of our $200,000,000 in annual cost savings targets.

Our teams have embedded consistent cost discipline into our daily operations and we are seeing the benefits as we have now delivered two consecutive quarters of absolute sequential decreases in SG and A. As we begin 2025, we see even more opportunities for market conquest, adjacency profitability and productivity improvements as we realize the full potential of our unique ecosystem. Our stores are well positioned to capitalize on a return to historical SAR levels and we saw significant growth in new unit sales in the fourth quarter. We are now seeing total vehicle GPU stabilize near our long term expectations. We saw improvements in our used unit sales trends, which continue to be a key focus and our after sales business delivered robust performance this quarter, which reflects a dedication of our team and our ownership in making decisions closest to our customer.

Our investments in adjacencies are now integrated as a platform for sustainable and meaningful profitability. Financing operations delivered profitability for the full year, demonstrating the strong earnings trajectory ahead. Additionally, we continue to refine our e commerce strategies, bringing in new customers as part of our omni channel strategy. This quarter also delivered strong returns on our wheels investments and we look forward to realizing the synergies presented by our partnerships. In 2025, we continue to focus on unlocking the profitability of our ecosystem by decisively acting to create customer loyalty, achieve our potential and unlock the growth in our ecosystem by delivering on our core strength, execution.

The foundation of the LAD strategy lies in our vast physical network, supported by the industry's most talented people, high demand inventory and dense store footprint. We continue to expand this network, adding new locations, developing key adjacencies and forming strategic partnerships all aimed at enhancing customer experiences and unlocking the potential of our platform. We operate as the largest retailer in one of the largest addressable retail markets globally And our ability to grow profitability across every aspect of our business is now stronger than ever. We believe being the most competitive buyer in one of the largest and least consolidated retail markets is a key strategic advantage. Our steadfast strategy of delivering customer solutions that are simple, convenient and transparent enables us to capture a greater share of the customer's wallet and create durable customer loyalty throughout their ownership lifecycle.

These solutions are tightly integrated with our digital platforms, fostering a natural and lasting retention of our customers within our ecosystem, while brands like Driveway and Green Car significantly extend our reach to 50 times more customers than our core physical businesses provide. The LAD digital ecosystem continues to deliver positive momentum. We recently launched the My Driveway portal offering customers two fifty plus functions to provide more visibility and control while shopping and servicing. Our teams continue to deliver exceptional digital and physical customer experiences with a clear focus on extending our reach and expanding market share. The strength of our platforms, financial discipline, regenerative free cash flows and a culture that inspires growth powered by people enables us to be agile in responding to customer needs and capitalizing on the tailwinds the industry carries into 2025.

Our strategic positioning and the rollout of the My DRIVEWAY consumer portal allows us to increase touch points throughout the customer's lifecycle across our adjacencies and equip our stores with the tools to improve market share, loyalty, growth and ultimately profitability. Acquisitions remain a core competency and we continue our disciplined approach to look for accretive opportunities that can improve our network focusing 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. Life to date, our acquisitions have yielded over a 95% success rate and an after tax return of over 25% demonstrating that LAD is not your typical high risk roll up strategy. In the near term, we are watching acquisition pricing and remaining disciplined as we look for strong opportunities, while balancing this with the attractiveness of our own share buybacks.

Our capital generation and improving earnings allows us the flexibility to do both and are reiterating our expectation that estimated future annual acquired revenues will be in the range of $2,000,000,000 to $4,000,000,000 per year. We remain focused on growth and view industry consolidation as a driver of continued strong long term returns. With the capital engine we built, we are able to deploy our free cash flows to generate the highest returns remaining flexible to market conditions. We are maintaining our adjusted capital allocation to balance acquisitions and buybacks equally, especially given the attractive relative values of our own shares. During the quarter, we repurchased $93,000,000 or 0.9% of our outstanding shares.

We continue to evaluate acquisitions and share repurchases and will focus on share buybacks in the near term given market pricing dynamics on acquisitions. These elements combine for a clear and compelling pathway to generating $2 of EPS for every $1,000,000,000 in revenue in a normalized environment as illustrated in Slide 14 of our investor presentation. The key factors underlying our future steady state are now totally within our control and include the following: First, continue to improve our operational performance by realizing the massive potential that we have built in our own existing stores. This includes increasing our share of wallet through greater customer lifecycle interactions, sustained productivity gains, cost efficiencies and growing each store's new, used and after sales market share. Through these levers in our business, we see a pathway to achieve SG and A as a percentage of gross profit in the mid-fifty percent range.

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. This alongside our digital channels will bring U. S. Market share to 5%. Today, we have a combined new and used vehicle market share a little over 1%.

Third, financing of up to 20% of units with DFC and maturing beyond the headwinds associated with CECL reserves as you can see in our results. Our financing operations achieved full year profitability in 2024 and we expect meaningful profitability growth from here. Fourth, through scale, we are driving down our vendor pricing with solutions like Pinewood, leveraging corporate efficiencies and lowering borrowing costs as we path towards an investment grade credit rating. Fifth, maturing contributions from our horizontals including fleet management, DMS software, charging infrastructure and captive insurance. And finally, delivering ongoing return on capital to shareholders through increased share buybacks and dividends.

We are well positioned to grow our complete mobility ecosystem that leverages unique scale and capabilities to create more frequent, meaningful and durable customer experiences throughout the ownership lifecycle. With the foundational elements of our strategy firmly in place, we are now fully focused on execution and our confidence in our ability to drive to new levels of performance and establish a new standard for the industry. Now I'd like to turn the call over to Adam for an overview on key operating performance and how we are igniting our store and department potentials.

Thank you, Brian. In quarter four, our team demonstrated our ability to deliver exceptional customer experiences, focus on cost discipline and importantly, grow market share. Our focused approach of having the right leaders and the right products resulted in clear sequential improvement in sales trends, and we are confident in our ability to strengthen our opportunity areas, particularly used vehicle sales. I proudly stand by our leaders as they set a new bar for the industry in the months ahead. I'd like to focus today on three opportunities to drive profitability revenue growth, inventory trends and SG and A execution.

As Brian mentioned, we delivered our first year over year growth in operating profit in nine quarters with positive contributions from new vehicles, after sales and value autos, all supported by continued strength in SG and A execution. We are confident in our ability to continue delivering on our growth strategy in 2025. Let's now turn to our same store sales performance, where we saw strong performance in new vehicles and value orders. Total revenues increased by 3.1% and gross profits declined 3.7%, primarily due to the normalization of GPUs. Total unit sales increased 1.7% year over year, while total gross vehicle profit of 4,535 was consistent with the prior sequential quarter and was down $444 compared to the same period last year.

New vehicle units increased 7.4% year over year with particular strength in import manufacturers. Our front end GPUs remain resilient at 3,082, decreasing sequentially from 3,188. Used vehicle units were down 4.3% year over year. We saw strong performance in value orders, which were up 24.6% year over year and we saw improvement in certified and core unit trends. Front end GPUs for used vehicles are stable year over year at $19.59 dollars and declined sequentially by $177 Used autos continue to be the focus of our operations and whilst we're encouraged by our progress, we expect to see significant improvement in the quarters ahead.

An opportunity also remains with our after sales performance and this will be a key driver of growth in 2025. In the quarter, after sales revenues were up 3.4% compared to the prior year, delivering a 55.8% gross profit margin. Warranty work was core to this growth with a 19.9% increase in gross profit year over year. Our ability to manage technician headcount and drive operational efficiencies has positioned us well to meet ongoing demand, whilst also maintaining a strong focus on providing exceptional customer experiences in our after sales departments. Now turning to inventory, where we saw an overall decrease of approximately $200,000,000 on our inventory balances from quarter three.

We continue to see opportunity to decrease our inventory balances and are targeting 50 DSO for new and 40 DSO for used inventory balances in the second quarter as we look to achieve further flooring interest savings. The execution on our original cost saving plan of $200,000,000 was fully realized in quarter four. Our adjusted SG and A as a percentage of gross profit was 66.3 during the quarter and 66.8% on a same store basis, despite the typically higher SG and A we experienced in quarter four due to seasonality. Whilst we are pleased with two consecutive quarters of strong SG and A performance, we remain dedicated to achieve continued cost savings and maintain a focus on disciplined cost management as we move through 2025. Opportunities to improve our cost structure remain with a potential to achieve SG and A of $65,500,000 to $67,500,000 on a same store basis in 2025 through continued efforts in North America and our UK network where optimization remains.

Our team's relentless focus on delivering exceptional customer experiences and achieving performance through people this quarter is impressive. I'm proud of the team's progress in 2024 and confident in our outlook for 2025 and look forward to inspiring customer loyalty, achieving the potential of our stores and igniting growth across our ecosystem. I will now turn the call over to Tina to walk us through our key financial highlights.

Thank you, Adam. The clear momentum Adam outlined in our operations has enabled us to accelerate our focus on creating value through our financing operations segment, efficient capital allocation and disciplined balance sheet management. Starting with our financing operations segment, primarily driven by DFC, we continue to see solid progress with profitability of $9,000,000 this quarter compared to a loss of $2,000,000 in the same quarter last year. The benefits of our diversification strategy are apparent as our seasoned portfolio continues to grow and our capital and securitization efficiency improves with the market building confidence in our operations. 2024 was the turning point with profitability of $15,000,000 for the full year.

We expect to continue to see this profitability trajectory in 2025 as we balance yields, growth and risk with an emphasis on high quality loans and disciplined underwriting. The financing operations portfolio balance is now over 3,900,000,000 with DFC originating $5.00 $1,000,000 in loans during the quarter. Our portfolio quality continues to be strong with new origination FICO scores expected to average $7.3 in 2025 and sustained improvements in net interest margin, which increased 135 basis points year over year and 55 basis points sequentially. Overall, our financing operations continues to deliver on our financial milestones ahead of schedule. The adjacency is a key element of our $2 EPS for every $1,000,000,000 of revenue target as each loan originated by DFC contributes up to $1,500 more profitability than traditional indirect lending.

We remain confident in this segment's long term earnings growth and expect increasing profitability with a fully seasoned portfolio. Now moving on to our cash flow performance and balance sheet. We reported adjusted EBITDA of $419,000,000 in the fourth quarter driven by relatively flat net income as higher unit sales offset continued GPU normalization and higher floor plan interest expense year over year. During the quarter, we generated free cash flows of $180,000,000 Free cash flows were impacted by higher floor plan interest expense and an increase in capital expenditures compared to the prior year mainly related to construction to meet manufacturer requirements at recently acquired locations. Our capital deployment strategy focuses on the efficient allocation of our business's 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 continued our focus on closely balancing acquisitions with shareholder return as we see elevated pricing on store acquisitions even as margins normalize compared to our shares' current valuations. Prospectively, we look to allocate 30% to 40% of free cash flows to share repurchases. Our capital allocation strategy is guided by M and A transaction pricing. And as acquisition pricing normalizes, we will actively reassess. Capital expenditures have trended down and are now primarily related to network optimization and OEM requirements.

Under this rebalanced focus in the fourth quarter, we repurchased nearly 1% of our outstanding shares at a weighted average price of $377 4 60 9 million dollars remains available under our share repurchase authorization. We ended the quarter with net leverage of 2.5 times in line with our long term target planned growth and target leverage below three times. These planned growth and target leverage below three times. These metrics adjust for the impact of floor plan debt, which is unique to our industry and related to the financing of vehicle inventory. This financing is integral to our operations and collateralized by our inventory.

The industry treats the associated interest as an operating expense and EBITDA and excludes this debt from balance sheet leverage calculations. Similarly, we have ABS warehouse lines and issuances to capitalize DFC, which are also excluded from our leverage calculations. Our strategy is to achieve strong consistent growth and best in class shareholder returns through our omni channel platform. We have the right team, tools and financial foundation in place to drive scale and profitability in our core business and adjacencies. Our diverse and talented team is committed to delivering exceptional customer experiences to build loyalty and we have the foundation to ignite our potential as we grow in 2025 and beyond.

This concludes our prepared remarks. With that, I'll turn the call over to the operator for questions. Operator?

Thank you. We will now be conducting a question and answer session. Thank you. Our first question comes from the line of Ryan Sigdahl with Craig Hallum. Please proceed with your question.

Hey, good morning, Brian, Tina, Adam. I want to start with what you're seeing in the current environment. So clearly sentiment has improved, SAR has improved kind of towards the tail end of Q4. It seems like trends have continued in January despite some weather and various impacts. But curious what you guys are seeing from a trend standpoint, kind of how you view the new administration, tariffs if there's any impact and noise kind of recently, but just kind of a current market update would be great?

Thanks, Ryan. This is Brian. I think we're pretty excited entering the year because we're finally seeing the tailwinds of volume coming back whether those are driven by economic change or political changes. We definitely see a pathway by year end exiting the year at $17,000,000 SAR and more likely that we believe that there could even be an $18,000,000 year in the future knowing that there's about $11,000,000 to $12,000,000 units that have been suppressed or not sold over the last five years that things look pretty good. Now if we're looking at other macro issues, I think tariffs is probably one of the larger things.

And I'd probably never thought I'd be sitting here saying I'm glad I have an extra twenty days of inventory over most of the industry, but we are sitting in a nice position with inventory of tariffs do end up coming in. The tariffs for us, we have about 36% to 38% of our vehicles we estimate that could be impacted by tariffs. And being that we've got a fifty plus day supply, we should be sitting quite nicely to be able to work through any negotiations that are happening between the two countries or three countries or four countries or whatever it ends up being at. So all in all, the market is there, okay? And I think in terms of our performance this quarter, I don't believe that we captured all of our opportunity, okay?

We did a solid job in the new cars, okay? But that gives indication that there was a market there that we did not capture on used cars, okay? I believe that it's highly likely that we could see double digit same store sales growth on used cars in the coming years, okay, as well as possibly on new cars and that's a good sign for the industry as well. When it comes to after sales, again, I think our warranty business filled our shops at up 20% and our customer pays were sacrificed because of it up only 2%. Okay.

We've got to be able to walk and chew gum in our service departments at the same time, meaning that when warranty goes up, we're still servicing our customer pay work. So all in all, lots of opportunity for us knowing that our ecosystem is fully built and grounded. We're 100% focused on capturing that opportunity.

That's great. My follow-up question, just looking at your 2025 new vehicle GPU outlook, it seems a little more pessimistic or maybe conservative, I guess, however you want to view that, versus some of your peers that are saying we're closer to the bottom and new normal than we are kind of needing a lot more normalization to go. I guess the question is what are you seeing in terms of is it industry dynamics, is it conservatism? And then kind of secondly to that is the $2,500 to $2,700 of new vehicle GPU, is that the target new normal, which I think you've said in the past? Or is that the average that you expect for the year from a kind of guidance standpoint?

Ryan, I think when we think about GPUs that I think this has been the theme probably for the last four or five years that we're a little bit more conservative on GPUs. We think if we don't do that, then people get out of control on their cost structure. So with our rightsizing plans and our sixty day plans in place, it's imperative that we match GPUs with our cost structure. So we probably are a little more conservative because of that reason. In terms of the $2,500 to $2,700 that is what we're looking at for the year.

We believe that the normalized level is somewhere in the $2,300 to $2,500 level, okay. And add another $2,000 in F and I get you to the $4,300 to $4,500 okay. So there is some that will come out, but I really believe if demand is at where it's at today and we're in the middle of winter, okay, I really believe that we've got a lot of upside when it comes to Q2, Q3 when seasonality for us really starts to take hold.

Our next question comes from the line of Brett Jordan with Jefferies. Please proceed with your question.

Hey, good morning, guys. I think you talked about significant improvement in used. And I guess sort of could you parse out what is volume versus GPU there sort of where you see us in the used profit cycle?

I think we are obviously pleased with our value orders as I said in my remarks with solid growth both through the quarter and on a full year basis at W2 as well. But overall, we have to be disappointed with

And we've got a significant focus on driving used in 2025, especially when we can show we're up on new cars, 55% of our used cars are sourced through trade in. So there's no logic trail to say why we should be different on used, if that makes sense. In terms of GPUs on used cars, we saw a lot of volatility in pricing in 2024. If we look at historical norms, we think there may still be a slight upside on used cars, but that remains to be seen as we kind of try and drive volume back as well. Does that make sense?

Thank you. And I guess you also mentioned in prepared remarks, improving UK efficiency and SG and A. Could you just give us an update where you are, what inning there?

Sure, Brett. This is Brian again. We're actually quite pleased with what's occurring in The UK relative to market conditions. It's obviously a little softer market. You probably saw that from some of our peers as well.

But we have improved our position when it comes to cost management. I think we were around just over 80% SG and A as a percentage of growth, which is still far from the 75% that we're targeting. Okay. But going through the winter months and knowing those gloomy days over The United Kingdom are there, we're pretty positive of where we're at. We've right sized that part of the organization.

So you'll start to see that come into same store sales this quarter, okay? So you'll get to see some of those improvements. But all in all, we're really pleased with the investment. We are getting our feet on the ground a little bit when it comes to reporting and it comes to that idea of performance through people and managing people. But you know what?

We've got great leadership over there with Neil and his teams and we're excited with what the future holds. Lastly, we also have cleaned up entire the entire mess that I would say that we bought. If you recall, there was those 30 to 50 businesses that were too small to operate. All of those have been shuttered now or they've been sold. We've monetized on all of them, but two and the remaining two will get monetized by the March, Okay.

So we're pretty pleased with where we sit on that. In terms of the associated real estate, our leaders in The UK did a nice job. We're almost 100% gone on selling all those properties. In terms of the lease properties, We've got work through almost 70% of the equivalent pounds that those costs. So we're real pleased where we sit on that as well.

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

Great. Thanks for taking the question. Just first one on the SG and A curve. I think Adam decided like there's more opportunities here. Could you elaborate what areas that might be?

Is it more in The UK versus The U. S? Just curious if you could dive a little bit deeper there and I have a quick follow-up.

Hey, Rajat, thanks for the question. Yes, I think if we look at, if you remember, we had our sixty day plan, I think we talked to you about it in the late summer last year. We kind of realized the measures identified in that and through the fourth quarter, we took out a further $200,000,000 in inventory. So that was promising. I think we still believe there's another $50,000,000 to $70,000,000 in vehicle inventory to kind of clean up and manage through the quarter into quarter two.

And then I think we're in good shape. But of course, the underlying premises, we remain disciplined as we move forward through our store leaders or ops leaders to make sure that we don't just jump back and add the cost. And so I think we talk about SG and A discipline as a kind of everyday buzzword now, but to be specific to your question, the new car inventory should decline by another 50 to 70. And I think Brian probably is best positioned to comment on UK, Roger.

You bet. In fact, let me just recap a little bit on the entire organization. If you remember, we've finished $200,000,000 in cost reduction. There's another $50,000,000 to $70,000,000 in cost savings coming from inventory. We also found another almost $50,000,000 in personnel costs at the support functions, okay, as well as tech costs.

Those will be realized in the first half of twenty twenty five for an aggregated total of almost $320,000,000 There's another $20,000,000 to $30,000,000 that's in The U. K. But like I said, you'll see that in the same store sales results this coming quarter. I think most importantly, when you think about driving down SG and A, we're talking about approximately 1.5% SG and A reductions over the coming five years, okay, to drop us into that mid 50% range. Okay, that's going to come through growth of top line.

So it's imperative that we're able to grow our same store sales growth and then do it in a way that it's cost efficient. We announced the release of the driveway portal in those two fifty functions that help our team members and associates do things easier and gain productivity. That's part of it. Okay. If our customers can do their work and have transparent, simple and empowered experiences within that portal that relieves some of the pressure in the service departments and the sales departments as well.

So it's a combination of those two elements top line growth and disciplined reductions that are coming from the uniqueness of our ecosystem that we're going to be able to get to that mid-fifty percent SG and A cost. Thanks, Rajat.

Just one follow-up ahead and thanks for all that color. On points and services, you had pretty good warranty growth as you talked about. I was still a little surprised to see just 3.5 like revenue growth, 4.5% gross profit growth. I mean, curious how do you accelerate that to the mid single digit guidance for the full year? You also have some easy compares from the CDK outage in 2Q, 3Q.

So I would imagine it would be higher than the mid single digits, but any more color you could give there on these initiatives in that business, where you are in technician ads, etcetera, that can give us some comfort in the acceleration? Thanks.

Sure, Raj. This is Brian. I think after seeing our peers, we're not happy with 3.5%, okay. That didn't meet market, okay, which is important. The exciting thing is I think I can I think Adam and I can both sit here and say that we've got the challenge out there for our after sales leaders to be able to reach higher, okay?

It won't turn in months, it'll turn in a few quarters, But we've established multiple things of how we can actually grow warranty and grow CP. It's not a tech issue, okay. It's more of a mindset issue from the service advisors in the organization and management that they believe that there's only so many hours there and they can find the efficiencies, okay? We just announced the release of what we call our Lithium Driveway Partners Group. That was at a store manager level only, okay?

That's now getting rolled out to department level managers and that's something that's going to grow the pride for performance within our stores. And that should that's tied directly to a departmental potential exercise, which is setting a higher bar that again is establishing that there's a market there, we need to capture it. So I really look at it. We could be high single digits, low double digits again like we were pre COVID within the coming, I would say three to four quarters. The marketplace is there and the optionality that we're providing through the portal or through in home service functions should be able to take market share and grow that business.

We've outrun, I would say, the regional differences in population growth, okay? There isn't really big differences any longer. So there's not a good excuse for why we were at 3.4 and others were pushing high single digits. So we'll get there, Raja. Thanks for pointing that out.

Thank you. Thanks for all the color and good luck.

Our next question comes from the line of Chris Bottiglieri with BNP Paribas. Please proceed with your question.

Hey, thanks for taking the question. Hey guys. I wanted to follow-up the first one on the guidance for 25% on the gross margin rate for service. Looks like you've been doing really good like 56% grosses. Looks like you have that dropping for some reason next year to 52% to 55%.

Is that just mix with customer pay? Or is that anything you're doing with wheels for next year? Just trying to understand why.

Chris, this is Brian. Yes, it's more of a mix between the labor part of the after sales and the inventory part. So service versus parts, we believe that as cars become more complex and more rip and replace that there's a bigger parts content on cars than there is a labor content. So you're going to generally see us lean towards margin reductions because of the bigger parts mix. Okay.

It's not that we got smaller business. It's purely just the mix of those. And it may end up happening slower than what we expect, but we do hedge that on the more conservative side because of the parts mix.

Got you. Okay. And then two, just wanted to kind of get a sense for the GPU guide. If you look at the GPU guide on the used side, you did 1,800 like 1,800 to 2,300 same store guide, pretty wide range, but you have UK slipping into the comp base. You're exiting at 1,700 in Q4, '18 hundred in Q3.

So at a big the midpoint is a pretty big snapback relative to 24. Just trying to get a sense, were there like underappreciated headwinds in '25 I mean 24 like inventory write downs or anything that maybe you weren't calling out that kind of gives you visibility to the snapback in '25 or in your view what drives that recovery into used GPU? And then I guess similarly F and I seems that a little bit of a snapback in the '25 guide?

Chris, this is Brian again. I think when it comes to the GPUs, the major factor is The UK, okay, because obviously they're considerably lower. The other thing is in The UK, F and I is much lower as well. So that has implications on that. I do believe that there's opportunity to grow our F and I.

And obviously, I mean, we're targeting that 2,000 number. But as ASPs get higher, the financing amounts get higher as well. And obviously, that drives F and I profitability. So I do believe that there's some nice upside that we could also realize. And again, we try to be realistic as we can with what we see in the current marketplace.

Our next question comes from the line of Jeff Lip with Stephens. Please proceed with your question.

Good morning, Brian, Tina, Adam and Jardone. A couple of one first question, your store count went from four sixty seven to four fifty nine. There really wasn't any press releases kind of highlighting that. I don't recall you're talking about it. Could you elaborate on what drove that what were those stores and why it went backwards in that regard?

And then also on the after sales guidance, I was just curious the $52,000,000 to $55,000,000 is what are the puts and takes like what would cause you to be closer to $52,000,000 versus closer to $55,000,000?

Sure. So on store count that is purely the divestiture and closures of stores in The UK that were disclosed a year ago. Okay. So those got finalized, which is great to have that a lot cleaner. In terms of the $52,000,000 to $55,000,000 the biggest variance is typically are what happens on recalls and how much of its parts.

Okay? So as I like I just went through a few minutes ago that parts mix is why we give that range. I do believe that a 54% to 55% is probably appropriate for the near term. So you shouldn't see much you shouldn't see I wouldn't even call it margin degradation, I'd call it mix change, okay. Because remember on parts, our profitability level is about 30% and on labor sales in the service department, they're 65%, Okay.

So big differences that purely that can move things pretty quickly if you have an RO that happens to be 60% parts versus 60% labor.

And then just a couple of quick follow-up clarifications for Adam. One was Adam, you mentioned 55% of new that statistic you were referring to that each again the 55 of the new deals come with the trade because I don't think that was you weren't implying that 55% of your used to source.

yes, it's a great question, Jeb. It's the source of trade it's the source of our used cars. So 55% are sourced from customer trade ins. People who bought a new car trade in trade one in and we try and sell that.

Here's the actual here's our breakdown. It's 55% trade in, 1% buying them off the service drive, four percent lease, 8% private party and 2% through driveway for a total of 70% that comes from the consumers. Okay. The rest is service loaners dealer from other dealers, wholesalers, rental companies and auctions.

And then one quick last quick one. When you mentioned Adam that the SG and A benefits were fully realized, you were referring to just this quarter, right? You still have a couple more quarters to go where you're going to be running 50 plus through?

Yes. Great question. I think Brian talked about that. For the quarter, we realized we still see opportunity in inventory floor plan, as

to $70,000,000 and then as we grow top line revenue and growth, we see an opportunity as Brian said to decrease sequentially across the coming

Awesome. Well congrats on a great quarter and give my best to Sid.

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

Lithia Motors (LAD) Q4 2024 Earnings Call Transcript

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