Lithia Motors Strong 2nd Qtr; Armed for Aggressive Acquisition Strategy

Lithia Motors Strong 2nd Qtr; Armed for Aggressive Acquisition Strategy

Updated: 5-yr growth plan and new online brand unveiled.
July 22, 2020 — Lithia Motors’ share price is at its all-time high trading above $195 in early trading this morning — which is up from $62.98 on March 18.

The Oregon-based dealer group reported its highest ever second-quarter net income this morning generating $3.72 per diluted share in adjusted earnings based on $86 million adjusted net income generated during the quarter.

As expected, the impact from the pandemic drove overall revenue down for the first six months of the year from $6.1 billion in 2019 to $5.6 billion in 2020.

Much of that decline is due to a drop in new-vehicle revenue which is down nearly 20% for the quarter and 13,5% for the year.

Service and repair revenue also took a hit down 20.6% for the quarter and 9% for the year.

Used vehicle retail revenue fared much better up 3.8% for the quarter and 4.7% for the year.

Despite the drop in revenue, the group reported an increase of 9.4% in F&I revenue per unit along with a gross profit per unit increase of 11.4% to $4,030.

“The strong sequential improvements throughout the quarter, coupled with our stores’ responsiveness to the current environment, led us to the highest quarterly adjusted earnings per share in our company’s history,” Bryan DeBoer, President and CEO said in a statement this morning. “This record performance illustrates the massive opportunity that exists within our $2 trillion industry that we are unlocking through continued growth and the activation of our ecommerce digital home solutions.”

Lithia Motors, whose market cap of $3.9 billion is the highest of the six public franchised dealer groups, appears poised to continue its aggressive growth strategy the next few years with DeBoer saying the group could capture 5% of the new car sales in the U.S. at some point.

The growth in the last several years has come from a robust acquisition strategy in which it accounted for 44 of the 74 acquisitions made by the public dealer groups between 2017 and 2019.

Today, Lithia has 188 locations across 20 states, and is adding more.

This year, Lithia added five stores — two Lexus stores in the first quarter and Smolich Chrysler Dodge Jeep Ram and Nissan along with Ladin Subaru in the last month. According to previous statements from management, there are at least another 11 stores under contract this year.

(Updated) This morning, on its earnings call with investors, DeBoer unveiled a five-growth plan that includes another 200 plus acquisitions while driving Lithia to $50 billion in annual revenue, generating $50 earnings per share.

We expect the group to announce a fairly large acquisition in the next several days.

Last week it closed on a $255 million syndicated real estate revolving line of credit.

And yesterday it obtained an automatic shelf registration from the SEC, which will allow it to offer a variety of securities to the public over the next three years without having to produce a separate prospectus for each offering. The shelf registration gives Lithia the ability to raise money quickly.

The moves add to Lithia’s war chest it is building for an aggressive acquisition strategy. The company now has $1 billion in cash and liquidity from its revolving lines of credit and a potential additional $250 million from its unfinanced real estate.

(Updated) DeBoer also announced this morning the launch of Lithia’s online brand Driveway.

Click here to view our 2020 Mid-Year Report on Dealer Buy-Sells (available to premium subscribers).

Click here to view our 2019 Report on Dealer Buy-Sells (available to premium subscribers).

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