Lithia Motors(US:LAD)2024-02-14 20:54Financial Data and Key Metrics Changes - In Q4 2023, Lithia & Driveway reported revenues of $7.7 billion, an 11% increase from Q4 of the previous year, and adjusted diluted earnings per share of $8.24. Full-year revenues reached just over $31 billion [21][22] - Adjusted EBITDA for Q4 was $400 million, with nearly $1.8 billion for the full year 2023 [73] - Free cash flows for the quarter were $242 million, a 10% increase compared to the previous year [74] Business Line Data and Key Metrics Changes - New vehicle sales saw same-store unit volumes increase by 10%, while aftersales revenues rose by 3% [21][51] - Used vehicle revenues decreased by 11% and units sold were down 6%, with average selling prices declining by 5% to $28,000 [54] - The aftersales business, which constitutes 42% of gross profit, increased by 3% with gross margins at 55% [57] Market Data and Key Metrics Changes - The company holds approximately 8% market share in the UK, primarily in the luxury segment, and is focusing on expanding its presence in the US automotive market [6][27] - New vehicle inventory day supplies rose to 65 days, compared to 55 days at the end of Q3 [53] Company Strategy and Development Direction - The company aims to build an unreplicable ecosystem, focusing 90% of M&A dollars on automotive in the US [27][37] - A strategic partnership with Pinewood Technologies is expected to enhance customer experience and operational efficiency [83] - The company targets a revenue-to-EPS ratio of $2 for every $1 billion in revenue, with a long-term goal of achieving $50 billion in revenue [31][37] Management's Comments on Operating Environment and Future Outlook - Management anticipates a normalization in GPU levels, projecting total GPUs, including F&I, to reach $4,500 by the end of 2024 [52] - The company remains focused on improving margins and reducing SG&A as a percentage of gross profit below 50% [41][59] - Management expressed confidence in achieving strong returns through disciplined acquisitions and operational improvements [34][37] Other Important Information - The financing operations segment, Driveway Finance Corporation, reported a smaller-than-expected loss of $2.1 million, with receivables growing to $3.2 billion [24][62] - The company has completed nearly $22 billion in acquisitions since 2020 and is adjusting its strategy to balance M&A and share repurchases [74][75] Q&A Session Summary Question: On the buyback strategy shift and leverage - Management indicated that while M&A and buybacks are at parity, market conditions will dictate the approach. They have repurchased $40 million in shares during the quarter due to favorable valuations [9][11][13] Question: On Pinewood Technologies and its implementation - Management views Pinewood as a leading DMS system that will provide significant cost savings and improved functionality, enhancing the overall customer experience [93][94][97] Question: On SG&A growth relative to gross profit - Management acknowledged that SG&A growth has outpaced gross profit growth but expects normalization in the second half of the year [99][100] Question: On used vehicle market recovery - Management anticipates a recovery in the used car market by the end of February, driven by seasonal trends and inventory adjustments [102][103] Question: On leasing penetration and market conditions - Management noted that leasing penetration is influenced by manufacturer incentives and inventory levels, with expectations for improvement in the back half of the year [131]