Core Viewpoint - Lithia Motors reported strong Q3 2025 earnings, beating estimates, but shares have declined by 11.5% since the last earnings report, underperforming the S&P 500 [1][2]. Financial Performance - Adjusted earnings per share for Q3 2025 were $9.50, up from $8.21 in the prior year and exceeding the Zacks Consensus Estimate of $8.53 [2]. - Total revenues reached $9.67 billion, a 5% increase year over year, surpassing the Zacks Consensus Estimate of $9.61 billion [2]. Segmental Performance - New vehicle retail revenues increased by 4.5% year over year to $4.63 billion, exceeding estimates due to higher unit sales and average selling price (ASP) [3]. - New vehicle units sold rose by 1.8% to 96,639 units, beating the estimate of 95,276 units, with ASP increasing to $47,913 from $46,649 [3]. - Used vehicle retail revenues grew by 8.9% to $3.1 billion, surpassing estimates, driven by higher ASP [4]. - Used vehicle retail units sold increased by 4% to 109,097 units, though below expectations, with ASP rising to $28,381 [4]. - Revenues from used vehicle wholesale fell by 6.1% to $367 million, missing estimates [5]. Cost and Expenses - Cost of sales increased by 5.4% year over year, while SG&A expenses rose by 5.8% to $998 million [7]. - Adjusted SG&A as a percentage of gross profit was 67.9%, up from 66% in the prior year [7]. Cash and Debt Position - Cash and cash equivalents increased to $417.1 million as of September 30, 2025, from $402.2 million at the end of 2024 [9]. - Long-term debt rose to $6.97 billion as of September 30, 2025, up from $6.12 billion at the end of 2024 [9]. Shareholder Returns - The company announced a dividend of 55 cents per share, payable on November 21, 2025 [8]. - Lithia repurchased approximately 1,312,000 shares at an average price of $312, with $889.3 million remaining under its buyback authorization [8]. Market Outlook - Lithia Motors holds a Zacks Rank 3 (Hold), indicating an expectation of an in-line return in the coming months [13]. - The company has a strong Growth Score of A but lags in Momentum Score with a D, while maintaining an aggregate VGM Score of A [12].

Core Viewpoint - Lithia Motors (LAD) is performing well in the used vehicle and aftersales segments, but faces challenges in new vehicle profitability and consumer affordability [1]. Group 1: Company Performance - Lithia Motors is experiencing success in the used vehicle market and aftersales services, indicating strong operational performance in these areas [1]. - New vehicle profitability for Lithia Motors is under pressure, suggesting potential challenges in maintaining margins in this segment [1]. Group 2: Market Conditions - Consumer affordability remains a significant issue, which could impact sales and profitability for Lithia Motors in the new vehicle segment [1].

Company Performance - Lithia Motors reported Q2 2025 adjusted earnings per share of $10.24, up from $7.87 in the prior year, exceeding the Zacks Consensus Estimate of $9.78 [3] - Revenues for the quarter reached $9.58 billion, a 3.7% year-over-year increase, also surpassing the Zacks Consensus Estimate of $9.53 billion [3] - New vehicle retail revenues increased 2.2% year over year to $4.5 billion, although it fell short of the estimate of $4.75 billion [4] - Used vehicle retail revenues rose 3.6% year over year to $3.1 billion, exceeding the estimate of $2.9 billion [5] - Revenues from used vehicle wholesale surged 32.3% to $383 million, outperforming the estimate of $340 million [6] - Same-store new vehicle revenues increased by 2% year over year, while same-store used vehicle retail sales rose 6.5% [7] Financial Metrics - Cost of sales increased by 3.7% year over year, with SG&A expenses reported at $1.01 billion [8] - Adjusted SG&A as a percentage of gross profit decreased to 67.7% from 67.9% in the prior year [8] - The company announced a dividend of 55 cents per share, payable on August 22, 2025 [9] - As of June 30, 2025, Lithia had cash and cash equivalents of $404.4 million, up from $402.2 million at the end of 2024 [10] - Long-term debt increased to $6.7 billion from $6.1 billion as of December 31, 2024 [10] Market Outlook - Lithia Motors has a Zacks Rank of 3 (Hold), indicating an expectation of an in-line return in the coming months [14] - The stock has an average Growth Score of C, a Momentum Score of D, and a Value Score of A, resulting in an aggregate VGM Score of B [13] - In comparison, AutoNation, a peer in the automotive retail industry, reported revenues of $6.97 billion for the last quarter, reflecting a year-over-year increase of 7.6% [15]

Financial Data and Key Metrics Changes - Adjusted net income from continuing operations improved by 12.4% in the second quarter, with EPS increasing by 17.5% on the same basis [5] - Quarterly record revenues reached $5.7 billion, with gross profit at $936 million and adjusted diluted earnings per share from continuing operations at $11.52 [21] - New vehicle units sold increased by 4.66% on an as-reported basis, reflecting strong demand and operational execution [22] Business Line Data and Key Metrics Changes - U.S. new car sales were up 6% on a same-store basis, with parts and service revenues increasing by 11.7% to 12.8% [6][22] - Used vehicle revenues were the third highest on record, with a volume increase of 2.73% to 3.9% on an as-reported basis [22] - Aftersales gross profit increased by 14.3%, with customer pay revenue up 13.6% and warranty revenue up 31.9% [7][24] Market Data and Key Metrics Changes - The U.K. business showed a 96.9% to 109.6% increase in revenues and gross profit year-over-year, with used vehicles, parts and service, and F&I growing by 16% and 12% to 28.7% respectively [27] - Same-store retail used vehicle units sold in the U.K. increased over 8% year-over-year, while gross profit per unit remained relatively flat [27] Company Strategy and Development Direction - The company is focusing on improving productivity and operational efficiency, with plans to invest in technology and process improvements [19][30] - Continued investment in the aftersales business is seen as a significant opportunity, with a goal to increase customer pay and warranty revenues [8][12] - The company is balancing acquisitions and share repurchases, having acquired three dealerships in the quarter [17] Management's Comments on Operating Environment and Future Outlook - Management expressed caution moving forward due to pressures from car prices and rising interest rates affecting consumer demand [13] - The U.K. market faces macroeconomic challenges, but the company is confident in its long-term growth potential [14][16] - Management anticipates that most retailers who can drive scale and productivity will be the winners in the future [18] Other Important Information - The company has deferred certain capital expenditure projects and is reevaluating discretionary spending in light of the competitive environment [13] - The U.K. government announced subsidies for BEV vehicles, which may positively impact sales [14] Q&A Session Summary Question: How did new car GPUs progress through the quarter? - Management indicated that GPUs were strong throughout the quarter without significant spikes due to inventory changes [34][40] Question: Clarification on U.K. cost targets? - The increase in cost targets was primarily due to government-imposed increases and additional headcount reductions [36][37] Question: Sustainability of parts and service growth in the U.K.? - Management believes there is room for further growth in customer pay and plans to increase car count with more technicians [41][42] Question: Key factors for aftersales growth in the next few years? - The focus will be on reaching deeper into the owner base of older vehicles to increase market share [46][48] Question: Impact of BEV mandates on gross profit? - BEV volume is primarily going into corporate fleets, which affects retail margins [60][61] Question: Acquisition environment and opportunities? - Management noted that while the year has been quiet, there are signs of increased activity in the acquisition space [64] Question: How do lease returns affect future traffic? - Management indicated that predicting lease returns is difficult, but they are taking as many off-lease vehicles as possible [72][74] Question: U.K. SG&A costs and integration efforts? - The increase in SG&A costs was attributed to national insurance changes and ongoing integration efforts [82] Question: Confidence in customer pay growth offsetting warranty slowdowns? - Management expressed confidence in customer pay growth, although it may not fully offset warranty declines [85]