LITHIA MOTORS INC Q4 FY2024 earnings call

• Lithia & Driveway teams delivered strong results in the fourth quarter, with adjusted diluted earnings per share of $7.79. - The company achieved full realization of the $200 million annual cost savings target, with 2 consecutive quarters of absolute sequential decreases in SG&A. - Investments in adjacencies are contributing meaningfully to earnings. - The omnichannel ecosystem has driven customer engagement and unit sales. - The company continues to expand its physical network, develop adjacencies, and form strategic partnerships. - Focus on building customer loyalty through a diversified business model, and acquisitions remain a core competency with a 95% success rate and target of $2 billion to $4 billion in acquired revenues annually.

Lithia & Driveway grew revenues to a record $9.2 billion in the fourth quarter, a 20% increase from Q4 of the previous year. Adjusted diluted earnings per share were $7.79. Financing Operations had profitability of $9 million in the quarter, with full-year 2024 profitability at $15 million. The company reported adjusted EBITDA of $419 million in the fourth quarter, driven by relatively flat net income as higher unit sales offset continued GPU normalization and higher floor plan interest expense. During the quarter, free cash flows of $180 million were generated. The revenue contribution of adjacencies is meaningfully impacting the earnings trajectory.

• Financing Operations is expected to continue profitable growth in 2025 with a fully seasoned portfolio. - Prospectively, 30% to 40% of free cash flow will be allocated to share repurchases. - The company sees opportunities for same-store sales growth in 2025, particularly in used vehicles and F&I. - Anticipates SG&A improvements through top-line growth and disciplined cost reductions, aiming for SG&A as a percentage of gross profit in the mid-50% range. - Expects to see improvements in used vehicle GPUs and F&I profitability as market conditions normalize.

• Elevated acquisition pricing making store acquisitions less attractive compared to share valuations. - Market volatility affecting financial performance. - Challenges in fully realizing the potential of the ecosystem and adjacencies if execution falters.

Q: What's the current market outlook and impact of tariffs?

A: Bryan DeBoer mentions seeing a pathway to 17 million SAAR by year-end, with inventory positioned well to handle potential tariffs, and opportunities for double-digit same-store sales growth in used cars and new cars.

Q: How is the 2025 new vehicle GPU outlook?

A: Bryan DeBoer states they are more conservative on GPUs, expecting new vehicle GPU to be in the $2,500 to $2,700 range, with potential upside in Q2 and Q3.

Q: Elaborate on SG&A opportunities?

A: Adam Chamberlain mentions opportunities in inventory management, with potential $50 million to $70 million in further inventory reductions, and SG&A discipline through top-line growth and digital tools like the MyDriveway portal.

Q: Thoughts on used vehicle GPU recovery?

A: Adam Chamberlain notes focus on driving used vehicle volume, with historical norms suggesting potential upside, and Bryan DeBoer mentions U.K. impact and F&I potential.

Q: Insights on online approach?

A: Bryan DeBoer discusses the MyDriveway portal and integration of online services, targeting 50% lift in Driveway and GreenCars, and aligning compensation plans to drive online growth.