UPDATED: 4/24/14 2:05 pm ET -- adds details
Lithia Motors Inc. reported record first-quarter income, reporting gains based on increased customer-pay service work, higher vehicle sales and trimmed marketing and rent costs.
The second quarter is shaping up strong for the industry that should drive another solid earnings results, Lithia executives said.
“We’re on target for the quarter and for April,” said CEO Bryan DeBoer in an interview with Automotive News. “If you look at the run rate for the quarter or run rate for the SAAR, it shows lots of room for upside. I think we’ll see continued growth. The trends are positive as employment returns to the western markets.”
First-quarter unadjusted net income from continuing operations for the quarter was $24.7 million, a 13 percent increase over the same quarter in 2013. Adjusted net income from continuing operations rose 24 percent to $27.1 million.
Revenue from continuing operations increased 19 percent to $1.08 billion
"We grew same store sales in all four business lines in the first quarter," said CEO Bryan DeBoer in a statement.
DeBoer said Lithia had a 9 percent increase in service, body and parts sales driven by an 8 percent improvement in customer-pay work and a 17 percent increase in warranty activity.
“March was a solid month for national new car sales with a SAAR of 16.3 million, the highest level since November 2007. March was also the best month in our company's history in both revenue and pre-tax profit,” DeBoer said. “Our store leaders increased same store used unit volume 12 percent in the quarter as we continue our objective to sell 75 used units per store per month.”
New-vehicle unit sales rose 17 percent to 17,274 units. By comparison, overall sales of new vehicles in the United States rose 1 percent in the first quarter.
Used-vehicle unit sales increased by 19 percent to 16,316 units.
For the quarter, Lithia sold an average of 55 used vehicles per store, up from 50 in the year-ago period, DeBoer said. The sale of certified pre-owned vehicles rose by 28 percent in the quarter, mainly because rising new-vehicle sales over the past few years, he said.
Room for improvement
Despite the increase in service and parts business, DeBoer said Lithia is at a 55 percent service stall utilization rate.
“So there is a 45 percent potential for upside,” DeBoer said.
He says many of Lithia’s store’s service hours are not “as customer friendly” as they should be and some stores are considering later night hours and Sundays.
Lithia predicts revenue for the year to be $4.6 to $4.7 billion. It ended the first quarter with $22 million in cash and $133 million in available credit. Additionally, it has about $193 million in operating real estate that is currently unfinanced, which could provide an estimated additional $145 million in available liquidity, for total potential liquidity of $300 million.
Lithia has the potential to add $1.5 to $3 billion in revenue from acquisitions, DeBoer said.
“We've purchased eight stores and opened one location since October 2013, with total estimated annual revenues of $380 million,” DeBoer said.
He said the acquisitions represent an increase of 9 percent over Lithia’s full-year 2013 total revenues. Lithia we now operates 100 stores in 12 states.
Lithia’s same-store finance and insurance per unit was $1,200, up 6 percent compared with a year ago.
“While this is an improvement over 2013, we believe opportunity remains, as we continue to emphasize training and adjust pricing on certain products,” said CFO Chris Holzshu in a statement.
Lithia ranks No. 8 on the Automotive News list of the top 125 dealership groups in the United States, with retail sales of 67,177 new vehicles in 2013.