Lithia reports big earnings, outlines aggressive growth plans
Lithia Motors Inc. executives said today that they expect to increase annual revenue by 10 to 15 percent in coming years through dealership acquisitions. To reach that goal, they said, Lithia will have to look beyond its traditional western U.S. base for acquisition targets.
The company also laid out plans to raise revenue and profit at existing stores.
Lithia sees a healthy market for acquisitions this year and has some deals in the works, CEO Bryan DeBoer said during a conference call.
“We need to grow a little bit bigger than we have the last couple of years,” DeBoer said. “Our return-on-equity thresholds are extremely steep and we’re not modifying those. So we have to find a bigger pond.”
Lithia expects a 75 to 100 percent five-year after-tax return on equity for stores it buys. It seeks franchise exclusivity in each market.
Revenue growth through acquisitions was one of three so-called milestones for growth that the company laid out during its fourth-quarter earnings conference call with analysts.
A 10 to 15 percent growth in same-store sales.
Retaining at least half of each store’s gross profit increases as operating profits. That means, CFO Chris Holzshu said in an e-mail, that as an existing store’s gross profit grows, at least 50 percent of the increase will flow through to operating profit.
Lithia expects it will take three to nine years to achieve all three milestones, DeBoer said.
Seeking stores at NADA
Lithia, of Medford, Ore., has 87 dealerships, mostly in Oregon, Alaska, California, Idaho, Montana, Nevada and Texas.
Lithia executives met this month with brokers and dealers at the National Automobile Dealers Association convention in Orlando, DeBoer said. He said he expects Lithia to make an acquisition in the West, followed by one in the East, within six months.
Lithia expects its 2013 revenue to be $3.7 billion to $3.8 billion. Lithia’s 2012 revenue was $3.32 billion, up 26 percent.
It expects new-vehicle same-store sales to increase 12 percent, used-vehicle same-store sales to grow 9 percent, and service and parts sales to increase 5 percent this year.
Lithia plans to spend $55 million this year for facility improvements.
Lithia said gains in new and used retail vehicle sales helped drive fourth-quarter and full-year net profits.
Lithia’s fourth-quarter net income grew 6 percent to $19.8 million. Revenue during the quarter grew 26 percent to $877.4 million, Lithia said.
New-vehicle same-store sales rose 30 percent in the quarter; used-vehicle retail sales rose 20 percent.
Also, the dealership group had an 8 percent boost in service, body and parts business with more warranty work as well as customer-pay repairs and maintenance. Lithia also kept its expenses to 70 percent of gross profits.
“We grew total same-store revenue 23 percent in 2012,” DeBoer said in a statement. “Our store leaders continue to challenge their teams and remain driven to improve store performance in 2013 and beyond.”
Cutting costs in 2012
For the full year, revenue from continuing operations rose 26 percent to $3.3 billion. Overall net income increased 36 percent to $80.4 million.
Lithia retailed 55,666 new vehicles in 2012.
Lithia ranks No. 9 on the Automotive News list of the top 125 dealership groups in the United States with retail sales of 44,537 new vehicles in 2011.
Lithia’s 2012 adjusted general expenses were 69 percent of gross profit, down from 73 percent for 2011. Lithia cut costs by consolidating and standardizing data systems, helping each store’s manager to operate more efficiently, Holzshu said during the conference call.
Lithia wants to hold its expenses-to-gross profit ratio to the high 60-percent range, Holzshu said.
“Our strategy is unchanged. Our stores will stay focused on enhancing productivity in personnel and focused advertising, which comprise 75 percent” of general expenses, Holzshu said.
Older used cars, F&I profits
Lithia reported average finance and insurance gross profit per unit of $1,083 last year. That’s up from $1,031 in 2011.
Lithia expects average F&I gross profit per unit to be $1,100 this year.
DeBoer said Lithia’s high mix of “value” used vehicles diluted some F&I profits, but noted that those vehicles carry hefty 21 percent profit margins.
“Value” used cars, which are older used cars, make up 17 percent of Lithia’s used-car sales and typically those customers don’t buy F&I products. Lithia’s core used vehicles -- those aged 3 to 7 years -- make up 58 percent of Lithia’s mix with certified 1- to 3-year-old cars making up 25 percent.
For the fourth quarter, Lithia sold an average of 46 used vehicles per store per month. That’s up from 40 a year earlier. Its target is 75. DeBoer said Lithia will achieve that target by growing the number of core used vehicles per store.
“We’ll focus our stores to effectively source and procure inventory,” DeBoer said. “As we have more success in selling more core vehicles, we’ll generate more inventory.”
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