Lithia Q1 net income down 28% as 'normalization' returns to profit per vehicle

Lithia Motors Inc.'s net income fell 28 percent in the first quarter as the company posted record revenue but saw expenses rise and gross profit per vehicle fall.

Net income: $165 million, down 28 percent from the first quarter of 2023.

Revenue: $8.6 billion, up 23 percent — a record.

Vehicle sales: 85,683 new vehicles, up 26 percent;102,436 used vehicles, up 31 percent. Gross profit per vehicle was down 22 percent to $4,346.

Shares of Lithia slipped 5 percent to $251.25 in afternoon trading.

"In the first quarter, our teams responded as the industry continued to normalize inventories and profitability. We are committed to driving improvements across our business," CEO Bryan DeBoer said in a statement Wednesday.

"Our model is diversified with our adjacencies maturing and on a path to profitability, as we continue to deliver the best experience for our customers," he said. "Responding to market conditions, we are rebalancing our capital allocation from acquisitions toward returns to our shareholders, with the long-term target of delivering $2 in [earnings per share] per billion in revenues."

Lithia's gross profit per vehicle fell 22 percent year-over-year to $4,346 during the first quarter, though DeBoer told an earnings call that Lithia's increased revenue helped "outrun some of the declines in GPUs."

He said the "windfall" of higher gross profit per vehicle for the past four years helped develop its business and grow revenue and earnings by nearly three times.

"While the extra capital helped us build out our advantages, we have been clear that elevated GPUs would return to some level of normality," DeBoer said. "As strange as it may seem, my team and I welcome normalization, and getting back to working for our profits through providing rich and irreplaceable experiences, one customer at a time. "

He said he expected Lithia's gross profit per vehicle would settle in the range of $4,300 to $4,500.

Lithia also plans to improve profitability by reducing the proportion of gross profit going to selling, general and administrative expenses to settle at the "mid-50 percent range” during normal vehicle gross profit conditions, DeBoer said.

Lithia saw 70 percent of its gross profit going to those expenses during the first quarter, up from 63 percent a year earlier. On an adjusted basis, such expenses made up 69 percent of its gross profit, up from 63 percent a year earlier.

M&A action

Lithia in the first quarter bought Carousel Motor Group, a nine-store operation in the Midwest for an unspecified amount. The company also closed on the U.K. dealership group Pendragon for £397 million, the equivalent of $482 million under the exchange rates at the time of the Oct. 2 revised offer. The deal included 160 stores, mostly new-car dealerships; Pendragon Vehicle Management, the group's fleet business; and a piece of its dealership management system company Pinewood.

Lithia said its first-quarter costs included acquisition expenses, unrealized foreign currency losses, contract buyouts, investment losses and insurance reserves, while its income included a net gain on selling an unspecified number of stores.

Lithia, of Medford, Ore., ranks No. 1 on Automotive News' list of the top 150 dealership groups based in the U.S., with retail sales of 314,116 new vehicles in 2023.

Editor's note: An earlier version of this article misstated Lithia’s expense target; Lithia seeks to have the percentage of gross profit going to selling, general and administrative expenses reach the "mid-50 percent range”  during normal vehicle gross profit conditions.