<div id="readability-page-1"><p>Lithia Motors ((LAD)) has held its Q4 earnings call. Read on for the main highlights of the call.</p><h3>Valentine's Day Sale - 70% Off</h3><ul><li>Unlock  hedge fund-level data  and  powerful investing tools  for smarter, sharper decisions  </li><li> Stay ahead of the market with  the latest news and analysis  and maximize your portfolio's potential</li></ul> <p>Lithia Motors’ latest earnings call struck an upbeat tone despite visible margin pressure. Management highlighted record revenue and strong EPS growth, rapid scaling in its captive finance arm, and robust aftersales and used-car performance. At the same time, they acknowledged industry-wide GPU compression, higher SG&amp;A and softer new-vehicle sales, but framed these as execution issues with clear fixes underway.</p> <h2>Record Revenue and EPS Growth</h2> <p>Lithia reported quarterly revenue of $9.2 billion and a record full-year top line of $37.6 billion, up 4% year over year, underscoring resilient demand across its network. Full-year adjusted diluted EPS climbed 16% to $33.46, while Q4 adjusted EPS reached $6.74, showing that earnings power is still growing faster than sales even amid a tougher margin backdrop.</p> <h2>Driveway Finance Scaling Into a Profit Engine</h2> <p>Driveway Finance Corp. has emerged as a key earnings lever, with Q4 financing income of $23 million and full-year income of $75 million, up $67 million from the prior year. Managed receivables grew 23% to $4.8 billion, net interest margin expanded 55 basis points to 4.8%, and North American penetration reached 15% in Q4, with January already around 17.5%.</p> <h2>Used Vehicle Revenue and Volume Momentum</h2> <p>Used vehicles were a bright spot, with revenue up 6.1% year over year on 4.7% unit growth, showing consumers’ shift toward value and affordability. The company’s value auto platform grew units 10.9%, helping broaden the customer funnel and deepen reach into lower price points that can feed future service and financing business.</p> <h2>Aftersales Remains a High-Margin Anchor</h2> <p>Aftersales continued to outperform, with revenue up 10.9% and gross profit up 9.8%, supported by a hefty 57.3% gross margin. Both customer-pay and warranty work delivered roughly 10% gross profit growth, underlining strong customer retention and the stabilizing effect of service and parts on overall profitability.</p> <h2>Capital Allocation and Aggressive Buybacks</h2> <p>Lithia leaned into shareholder returns, repurchasing 3.8% of its shares in the quarter and 11.4% in 2025 at an average price of $314, while keeping leverage below its 3x target. Roughly 40% of capital was deployed to buybacks, balanced by acquisitions and internal investments, signaling confidence in intrinsic value and cash-generating capability.</p> <h2>Strategic M&amp;A Fuels Network Expansion</h2> <p>The group added about $2.4 billion of expected annualized revenue through acquisitions over the fiscal year, extending its geographic reach and brand mix. Management reiterated a goal of acquiring $2–$4 billion of revenue annually, positioning M&amp;A as a repeatable growth engine that complements organic gains in used, service and finance.</p> <h2>Operational and Technology Initiatives</h2> <p>Management emphasized tech investments such as Pinewood AI and a pilot dealer management system aimed at simplifying the tech stack and improving workflows and customer experience. UK operations showcased the potential of this model, delivering a 10% increase in same-store gross profit and a 53% rise in full-year adjusted pretax income.</p> <h2>Gross Profit per Unit Under Pressure</h2> <p>Industry-wide margin compression weighed on front-end results, with total vehicle gross profit per unit at $3,946, down $258 year over year. New vehicle GPU fell $300 to $2,760 and used GPU declined $151 to $1,575, illustrating the impact of competitive pricing and normalization after prior peak margins.</p> <h2>SG&amp;A Deleverage Hits Profitability</h2> <p>Costs have not yet fully adjusted to thinner GPUs, with adjusted SG&amp;A rising to 71.4% of gross profit from 66.3% a year ago in the quarter. For the full year, SG&amp;A reached 68.8% of gross profit, up roughly 130 basis points, reflecting lagged cost actions and some incremental marketing spend as volumes softened late in the year.</p> <h2>Adjusted EBITDA and Earnings Headwinds</h2> <p>Despite record revenue, Q4 adjusted EBITDA declined 8.9% to $364.1 million, largely due to margin compression and lower net income. The numbers underscore that while the top line is growing, efficiency and pricing will need to improve to restore earnings leverage, something management is targeting with structural SG&amp;A and pricing initiatives.</p> <h2>New Vehicle Revenue and Unit Declines</h2> <p>New vehicle revenue fell 6.6%, with units down 8.3%, as industry demand softened and incentives underperformed late in the quarter, particularly for luxury brands. Luxury revenue declined 12.7% year over year, highlighting pressure in higher-ticket segments and the importance of the company’s mix shift toward used cars and aftersales.</p> <h2>Used GPU and Pricing Execution Gaps</h2> <p>While used volumes rose, profitability per unit lagged as used GPU fell $151 year over year, revealing missteps in pricing. Management cited underpricing of value and low-mileage late-model cars by roughly 8%–13% and stressed the need for better store-level pricing discipline and data adoption to capture the full earnings opportunity.</p> <h2>Seasonal and Timing-Related Volume Shortfalls</h2> <p>The company faced a weaker-than-expected December close, which led to extra marketing spend and higher SG&amp;A pressure to chase volumes. Sequential softening at the end of Q4 extended into early Q1, with weather and timing headwinds compounding the shortfall, though management framed these as temporary rather than structural.</p> <h2>DFC Scaling and Short-Term Accounting Drag</h2> <p>Management noted that accelerating Driveway Finance penetration can temporarily dampen reported financing income due to reserve requirements under current accounting rules. Even so, they emphasized that higher penetration and growing receivables should significantly boost long-term profitability as the portfolio seasons and provisions normalize.</p> <h2>Guidance and Path to 2026 Targets</h2> <p>Looking ahead, Lithia is targeting adjusted EPS of $2 for every $1 billion of revenue, DFC penetration of 20% and about $500 million of pretax financing income, with a medium-term financing income CAGR above 20%. Capital priorities remain balanced between buybacks and M&amp;A, while SG&amp;A is expected to trend from roughly 71% of gross profit toward 60%–65% over the next three to four years as pricing, mix and efficiency improve.</p> <p>Lithia’s earnings call painted a picture of a retailer still in growth mode but working through margin normalization and cost friction. Record sales, strong EPS and a fast-growing finance arm are clear positives, while SG&amp;A deleverage, GPU compression and softer new-vehicle demand are being addressed with targeted operational and technology fixes that investors will watch closely into 2026.</p></div>

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<p>Lithia Motors (LAD) reported strong Q4 earnings with record revenue of $9.2 billion and a full-year total of $37.6 billion, marking a 4% year-over-year increase. Adjusted EPS rose 16% to $33.46. Despite margin pressures, the company highlighted growth in its finance arm and used vehicle sales. SG&A costs increased, impacting profitability, while new vehicle revenue fell 6.6%. Lithia is focusing on strategic acquisitions and technology investments to drive future growth and improve operational efficiency.</p>

Lithia Motors Earnings Call: Growth Amid Margin Squeeze