Lithia Motors (LAD) Q2 2024 earnings summary

Executive summary

• Achieved record Q2 revenue of $9.2B, up 14% year-over-year, and first profitable quarter for Financing Operations, despite operational headwinds from the CDK cyberattack.

• Net income attributable to LAD was $217M in Q2, down 28% year-over-year; diluted EPS for Q2 was $7.87, a 27% decrease year-over-year, with an estimated $1.10 per share impact from the CDK outage.

• Year-to-date revenue up 18% to $17.8B, but net income per diluted share for six months down 28% to $13.75, reflecting margin normalization, higher SG&A, and increased interest expense.

• Significant progress on a 60-day plan to achieve at least $150M in annualized SG&A cost savings, with potential to double by year-end.

• Acquired a minority stake in Wheels, Inc., a leading North American fleet management company, to enhance omni-channel mobility strategy.

Financial highlights

• Q2 gross profit rose 2.8% to $1.42B; operating income fell 17% to $393.6M; Q2 adjusted EBITDA was $435.4M.

• Q2 gross margin declined to 15.4% from 17.1% year-over-year; net profit margin was 2.3%.

• Free cash flow was $127M, impacted by lower EBITDA, the CDK outage, and higher capex.

• SG&A expense increased 18.9% year-over-year, reaching 69.2% of gross profit for the first half.

• Floor plan interest expense rose $75M year-over-year due to higher rates and inventory levels.

Outlook and guidance

• SG&A cost savings of $150M annualized to be fully realized in Q3, with potential to reach $300M by year-end, mainly from inventory reductions.

• Long-term target reiterated: $2 in EPS per $1B in revenue, with midterm (2–4 years) revenue target of $40–$50B and $20–$30 EPS.

• Management expects continued growth through acquisitions, digital retailing, and operational excellence, with available liquidity of $1.3B as of June 30, 2024.