8-K: Lithia & Driveway Reports Record First Quarter Revenue Despite Profit Dip

Lithia & Driveway (LAD) achieved record first-quarter revenue of $8.6 billion, a 23% increase year-over-year, but experienced a 29% decrease in net income per diluted share.

Summary

• Lithia & Driveway (LAD) reported a record first-quarter revenue of $8.6 billion, marking a 23% increase compared to the $7.0 billion in the same period last year.
• However, net income attributable to LAD per diluted share decreased by 29% to $5.89, down from $8.30 in the first quarter of 2023.
• Adjusted net income per diluted share also saw a decrease of 28%, falling to $6.11 from $8.44 year-over-year.
• The company's net income was $165 million, a 28% decrease from $230 million in the first quarter of 2023.
• Adjusted net income was $171 million, a 27% decrease compared to $233 million in the same period of 2023.
• Unrealized foreign currency losses negatively impacted earnings per share by $0.15.
• The company completed acquisitions of Pendragon PLCs Fleet Management and UK Motor Divisions, and the Carousel Motor Group, adding over $5.4 billion in annualized revenues year-to-date.
• Lithia ended the quarter with approximately $1.3 billion in cash, cash equivalents, marketable securities, and available credit, with an additional $0.3 billion in potential liquidity from unfinanced real estate.
• A cash dividend of $0.53 per share was announced, payable on May 24, 2024, to shareholders of record as of May 10, 2024.
• Approximately 58,000 shares were repurchased in April 2024 at a weighted average price of $264.42, with $451.7 million remaining under the current share repurchase authorization.

Sentiment

Score: 5

Explanation: The document presents mixed results with strong revenue growth offset by significant declines in profitability. The company is taking steps to address the issues, but the overall sentiment is neutral to slightly negative due to the profit decrease.

Positives

• The company achieved record first-quarter revenue, demonstrating strong top-line growth.
• New vehicle same-store unit sales saw a positive increase.
• The service, body, and parts segment experienced significant revenue growth.
• There was a substantial increase in monthly unique visitors to GreenCars.
• Driveway Finance Corporation showed strong loan origination volume.
• The company has successfully reduced the burn rate for Driveway and GreenCars.
• Lithia has made significant acquisitions, expanding its revenue base.
• The company has a strong cash position and available liquidity.
• A dividend payment was approved, returning value to shareholders.
• The company is actively repurchasing shares, indicating confidence in its value.

Negatives

• Net income per diluted share decreased by 29% compared to the same quarter last year.
• Adjusted net income per diluted share also decreased significantly.
• Net income and adjusted net income both saw substantial year-over-year decreases.
• Unrealized foreign currency losses negatively impacted earnings per share.
• Total vehicle gross profit per unit decreased by $1,239.
• New vehicle retail gross margin decreased by 280 basis points.
• Used vehicle retail gross margin decreased by 20 basis points.
• Finance and insurance average gross profit per unit decreased by 17%.

Risks

• The company faces risks related to future market conditions, including car sales levels and inventory supply.
• There are risks associated with the company's business strategy and plans, including achieving long-term EPS targets.
• The company's growth and expansion plans, including acquisitions, carry inherent risks.
• The performance of Driveway and DFC and their impact on the business are subject to uncertainty.
• Changes in customer demand and relationships with OEMs and suppliers pose risks.
• The competitive landscape and the company's ability to deliver new products and services are potential risks.
• The company's indebtedness, including borrowing capacity and interest rates, presents financial risks.
• Disruptions to the technology network and other operational disruptions are potential risks.
• Government regulations and legislation could impact the business.
• The company's ability to fund capital expenditures and pay dividends at planned levels is subject to risk.

Future Outlook

The company is focused on driving improvements across the business, maturing adjacencies, and rebalancing capital allocation from acquisitions towards shareholder returns, with a long-term target of delivering $2 in EPS per billion in revenues. The company also provided forward looking statements regarding future market conditions, business strategy, growth, and financial condition.

Management Comments

• Our teams responded as the industry continued to normalize inventories and profitability, said Bryan DeBoer, President and CEO.
• We are committed to driving improvements across our business.
• Our model is diversified with our adjacencies maturing and on a path to profitability, as we continue to deliver the best experience for our customers.
• Responding to market conditions, we are rebalancing our capital allocation from acquisitions toward returns to our shareholders, with the long-term target of delivering $2 in EPS per billion in revenues.

Industry Context

The automotive retail industry is experiencing normalization of inventories and profitability, which is impacting Lithia's results. The company's focus on diversification and adjacencies reflects a broader trend in the industry to expand beyond traditional dealership models. The acquisitions made by Lithia are part of a larger trend of consolidation in the automotive retail sector.

Comparison to Industry Standards

• Lithia's revenue growth of 23% is strong compared to some of its peers, but the decrease in profitability is a concern.
• AutoNation, a major competitor, has also been focusing on expanding its service and parts business, similar to Lithia's growth in that segment.
• CarMax, a leader in used car sales, has also seen some pressure on margins, reflecting the broader industry trend.
• The decrease in gross profit per unit is a common challenge across the industry as inventory levels normalize and pricing pressures increase.
• Lithia's move to rebalance capital allocation towards shareholder returns is a response to the current market conditions, similar to actions taken by other large automotive retailers.

Stakeholder Impact

• Shareholders will receive a dividend of $0.53 per share.
• Shareholders may be concerned about the decrease in net income and earnings per share.
• Employees may be impacted by the company's efforts to improve efficiency and profitability.
• Customers may benefit from the company's focus on delivering the best experience.
• Suppliers may be affected by the company's rebalancing of capital allocation.

Next Steps

• The company will continue to focus on driving improvements across the business.
• Lithia will continue to mature its adjacencies and work towards profitability.
• The company will rebalance its capital allocation from acquisitions towards shareholder returns.
• The company will continue to monitor market conditions and adjust its strategies accordingly.
• The company will hold a conference call to discuss the first quarter results.

Key Dates

Keywords

automotive retail, revenue, net income, acquisitions, dividends, share repurchase, used vehicles, new vehicles, finance, Driveway, GreenCars, Lithia, DFC