Lithia Motors (NYSE:LAD) Q4 2025 Earnings call February 11, 2026 10:00 AM ET Company ParticipantsBret Jordan - Managing DirectorBryan DeBoer - President and CEOChuck Lietz - SVP of FinanceDaniela Haigian - VP of Equity ResearchJardon Jaramillo - Senior Director of FinanceJeff Lick - Managing DirectorRajat Gupta - VPTina Miller - SVP and CFOConference Call ParticipantsJohn Babcock - AnalystJohn Saager - Senior Equity Research AnalystMark Delaney - Managing Director and Senior Equity AnalystMichael Ward - Fin ...

Financial Data and Key Metrics Changes - The company reported a 25% growth in adjusted EPS, reaching $5.01 for the quarter, an increase of nearly $1.25 from the previous year [4][15] - Total revenue for the quarter was $7 billion, reflecting a 7% increase year-over-year [12] - Adjusted net income increased by 18% to $191 million compared to $162 million a year ago [15] - Cash flow for the quarter was strong, with adjusted free cash flow being 1.7 times that of 2023 [10] Business Line Data and Key Metrics Changes - Same-store sales of new vehicles increased by 4.5%, with domestic segment growth leading at 11% [6] - Used vehicle gross profit increased by 3%, with unit sales up 4% overall [7][18] - Customer financial services gross profit reached a record high, increasing by 12% from a year ago [8][19] - Aftersales revenue increased by 6%, with gross profit up 7%, driven by customer pay [22] Market Data and Key Metrics Changes - Year-to-date light vehicle sales averaged 16.3 million units, with retail sales averaging around 13.6 million [5] - Industry inventory remains low at about 2.6 million units, down from the pre-pandemic norm of 4 million units [4] - The company reduced its BEV inventory by approximately 55% from year-end to around 1,550 units [7] Company Strategy and Development Direction - The company is focused on capital allocation, with over $1 billion deployed year-to-date for share repurchases and acquisitions [24] - The strategy includes maintaining higher inventory levels for used vehicles to support sales growth [41][45] - The company aims to improve franchise density and portfolio in existing markets through acquisitions [11][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the overall market conditions for new and used vehicles, noting reasonable holding patterns [4] - The company anticipates tougher comparisons in Q4 due to higher sales figures from the previous year [5] - Management expects improved dynamics in supply and demand for BEVs in Q4, potentially alleviating margin pressures [30] Other Important Information - The company has expanded its presence in key markets with acquisitions of multiple dealerships [11] - The finance portfolio has more than doubled since last year, now exceeding $2 billion, with improving credit performance metrics [20][21] Q&A Session Summary Question: Can you quantify the variable gross per unit changes from 2Q to 3Q? - Management noted that the decrease was primarily due to a significant increase in BEV mix and compression in domestic combustion sales, with expectations for improvement in Q4 [29][30] Question: Is there any reason the record level of finance and insurance per unit won't continue? - Management expressed confidence in the continued growth of finance and insurance contributions, driven by value-added products [32] Question: Any concerns regarding auto credit trends and consumer health? - Management reassured that the portfolio's performance is in line with expectations, with no acceleration in delinquencies or repossessions [38][39] Question: Update on used car business growth and profitability initiatives? - Management indicated that while growth is above industry levels, they are maintaining higher inventory levels to support sales, which may impact margins temporarily [41][45] Question: What is driving the gross margin expansion in service and parts? - Management attributed the expansion to increased volume and pricing, alongside effective technician hiring and training initiatives [49][50] Question: How is the company viewing competition in the used car market? - Management sees opportunities for consolidation in the fragmented used car market and is focused on maintaining strong sourcing strategies [66][68]

Financial Data and Key Metrics Changes - The company reported a 25% growth in adjusted EPS, with adjusted net income increasing to $191 million from $162 million a year ago, reflecting an 18% increase [11][15] - Total revenue for Q3 was $7 billion, a 7% increase year-over-year, with gross profit rising to $1.2 billion, up 5% from the previous year [13][14] - Adjusted SG&A as a percentage of gross profit was 67.4%, consistent with the previous year, while adjusted operating income increased by 9% [14][15] Business Line Data and Key Metrics Changes - Same-store sales of new vehicles increased by 4.5%, with domestic segment sales up 11% year-over-year [6][16] - Used vehicle gross profit increased by 3%, with unit sales up 4% overall, outpacing the industry [8][18] - Customer financial services gross profit reached a record high, increasing by 12% from a year ago [9][19] Market Data and Key Metrics Changes - Year-to-date light vehicle sales averaged 16.3 million units, with retail sales averaging around 13.6 million [5] - The industry inventory remains low at about 2.6 million units, significantly below the pre-pandemic norm of 4 million units [4][5] - The company reduced its BEV inventory by approximately 55% from year-end to around 1,550 units, indicating a strategic shift in inventory management [7][17] Company Strategy and Development Direction - The company is focused on capital allocation, with over $1 billion deployed year-to-date for share repurchases and acquisitions to enhance franchise density [12][25] - The strategy includes maintaining higher inventory levels for used vehicles to support sales while managing depreciation impacts [44][46] - The company aims to improve its sourcing strategy for used vehicles, leveraging trade-ins and direct consumer acquisitions [9][18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about market conditions, noting that inventory levels are in good shape despite challenges in new vehicle sales [4][5] - The company anticipates tougher comparisons in Q4 due to higher sales figures from the previous year [5][6] - Management highlighted the importance of adapting to evolving tariff negotiations and their impact on OEM profitability and supply chains [5][6] Other Important Information - The company achieved a significant increase in aftersales revenue, with same-store revenue up 6% and gross profit up 7% [23] - The adjusted cash flow for the nine months of the year totaled $786 million, reflecting a strong operational performance [24] - The company is actively exploring M&A opportunities to add scale and density to existing markets [25][26] Q&A Session Summary Question: Can you quantify the variable gross per unit changes from Q2 to Q3? - Management noted that the decrease was primarily due to a significant increase in BEV mix and pressure on domestic combustion sales, which was corrected towards the end of the quarter [29][30] Question: Will the record level of finance and insurance per unit continue? - Management expressed confidence in the continued performance of finance and insurance, driven by value-added products and strong team contributions [33] Question: What are the trends in auto credit and consumer health? - Management reported no concerning trends in delinquencies or losses, with performance metrics aligning with expectations [40][41] Question: Update on used car business initiatives? - Management indicated that while growth is above industry levels, they are maintaining higher inventory levels to support sales, which may impact margins temporarily [42][44] Question: What is driving the gross margin expansion in service and parts? - Management attributed the expansion to increased volume and pricing, alongside effective technician hiring and training initiatives [50][52] Question: How is the company viewing competition in the used car market? - Management sees opportunities for consolidation in the fragmented used car market and is confident in their sourcing strategy to maintain inventory levels [67][70] Question: Changes in demand for luxury vehicles? - Management noted a more muted demand in the luxury space compared to last year but expects a seasonal uptick in December [74][75]