News Column

Lithia Motors Reports Adjusted EPS of $1.34 for the Second Quarter of 2014, an Increase of 28% Over the Prior Year

July 23, 2014

Lithia Motors Declares $0.16 Per Share Dividend for Second Quarter

MEDFORD, Ore.--(BUSINESS WIRE)-- Lithia Motors, Inc. (NYSE: LAD) reported the highest quarterly adjusted net income in Company history and an increase in adjusted net income from continuing operations of 29% for the second quarter 2014 over the prior year period.

2014 second quarter adjusted net income from continuing operations was $35.2 million, or $1.34 per diluted share. This compares to 2013 second quarter adjusted net income from continuing operations of $27.4 million, or $1.05 per diluted share.

Unadjusted net income from continuing operations for the second quarter of 2014 was $35.2 million, or $1.34 per diluted share, compared to $25.3 million or $0.97 per diluted share for the second quarter of 2013. As shown in the attached non-GAAP reconciliation tables, the 2014 second quarter adjusted results from continuing operations exclude non-core charges related to acquisition expenses for the pending DCH combination offset by non-core gains resulting from a tax attribute, resulting in no change to earnings per share. The 2013 second quarter adjusted results from continuing operations exclude a $0.09 per share expense related to non-core legal reserve related to a case filed in 2006, partially offset by a $0.01 per share benefit from a tax attribute.

Second quarter 2014 revenue from continuing operations increased $213 million, or 21%, to $1.2 billion from $1.0 billion for the second quarter of 2013.

Second Quarter-over-Quarter Operating Highlights:

  • Total same store sales increased 11%
  • New vehicle same store sales increased 12%
  • Used vehicle retail same store sales increased 11%
  • Service, body and parts same store sales increased 10%
  • Same store F&I per unit increased $104 to $1,206
  • Adjusted SG&A expense as a percentage of gross profit decreased 80 basis points to 65.2%

    “For the first time in our history, same store sales experienced double digit increases in all four business lines,” said Bryan DeBoer, President and CEO. “Notably, we saw a record quarterly increase in service, body and parts sales, at 10%, driven by a 10% improvement in customer pay work and a 15% increase in warranty activity. The monthly SAAR accelerated throughout the second quarter, reaching a level of 16.9 million in June, the highest level since July 2006.”

    For the first six months of 2014, adjusted net income per diluted share from continuing operations increased 25% to $2.36 from $1.89 for the first six months of 2013. Unadjusted net income from continuing operations was $2.27 per diluted share for the first six months of 2014, compared to $1.81 per diluted share for the first six months of 2013.

    Chris Holzshu, SVP and CFO, said, “Our same store F&I per unit was $1,206, an increase of $104 per unit over the second quarter of 2013. Our adjusted SG&A as a percentage of gross profit improved by 80 basis points to a record result of 65.2% for the second quarter of 2014. Our incremental throughput, or the percentage of incremental gross profit remaining after deducting incremental SG&A expense, was 51% on a same store basis in the second quarter of 2014. We continue to target incremental throughput of 50% on a same store basis.”

    Corporate Development

    In April 2014, we acquired Access Ford Lincoln in Corpus Christi, Texas and opened Lithia Chrysler Jeep Dodge Ram of Wasilla in Wasilla, Alaska with $105 million in estimated total annual revenues. In June 2014, we acquired Vic Alfonso Cadillac and Braley & Graham Buick GMC in Portland, Oregon with $60 million in estimated total annual revenues.

    In June 2014, we also entered into a definitive agreement with DCH Auto Group Limited to acquire 100 percent of the outstanding shares of DCH Auto Group Inc., one of the 10 largest dealer groups in the country. The DCH stores are estimated to generate approximately $2.3 billion in annualized revenue. The transaction is expected to be funded through the expansion of Lithia's existing credit facility by $600 million, mortgage financing of $200 million, and available cash flows from operations. The transaction is subject to customary closing conditions and expected to close in the fourth quarter.

    Bryan DeBoer, President and CEO, stated, “The acquisition market remains robust. We purchased another three stores in the second quarter of 2014, bringing the total number of stores purchased or opened this year to eight. Last month we announced an agreement to combine the DCH Auto Group and Lithia, which will add their 27 locations and approximately $2.3 billion in annual revenue to our organization. The transaction with DCH remains on track to be completed in the fourth quarter of 2014. Additionally we continue to seek stores reflecting Lithia’s exclusive market strategy and believe the potential remains for more acquisitions in 2014.”

    Balance Sheet Update

    We ended the second quarter with $28 million in cash and $84 million in available credit on our credit facilities. Additionally, approximately $216 million of our operating real estate is currently unfinanced, which could provide an estimated additional $162 million in available liquidity, for total potential liquidity of $274 million.

    Dividend Payment and Share Repurchase

    Lithia announced that the Board of Directors has approved a dividend of $0.16 per share related to second quarter 2014 financial results. Lithia will pay the dividend August 22, 2014 to shareholders of record on August 8, 2014.

    Lithia repurchased 30,000 shares in the second quarter of 2014 at a weighted average price of $75.36 per share.

    Outlook for Third Quarter 2014

    We project 2014 third quarter earnings of $1.36 to $1.38 per diluted share. These projections are based on the following assumptions around third quarter 2014 performance:

  • Total revenues of $1.2 to $1.3 billion
  • New vehicle same store sales increasing 13.0%
  • New vehicle gross margin of 6.4% to 6.6%
  • Used vehicle same store sales increasing 7.5%
  • Used vehicle gross margin of 14.0% to 14.2%
  • Service body and parts same store sales increasing 8.0%
  • Service body and parts gross margin of 48.8% to 49.0%
  • Finance and insurance gross profit of $1,200 per unit
  • Tax rate of 39.5%
  • Average diluted shares outstanding of 26.4 million

    Outlook for Fourth Quarter 2014

    We project 2014 fourth quarter earnings for the combined Lithia / DCH organization of $1.23 to $1.26 per diluted share and full-year 2014 earnings of $4.95 to $5.00 per diluted share. These projections include $1.10 to 1.12 per share in earnings related to Lithia and $0.13 to $0.14 per share in earnings related to the DCH organization assuming an October 1 closing date. Additionally, these projections exclude $0.04 to $0.06 per share in acquisition expenses and are based on the following assumptions around fourth quarter 2014 performance:

    Combined Results

  • Total revenues of $1.6 to $1.7 billion
  • New vehicle sales increasing 65.0%
  • New vehicle gross margin of 6.4% to 6.6%
  • Used vehicle sales increasing 54.0%
  • Used vehicle gross margin of 13.1% to 13.3%
  • Service body and parts sales increasing 59.0%
  • Service body and parts gross margin of 47.1% to 47.3%
  • Finance and insurance gross profit of $1,145 per unit
  • Tax rate of 40.0%
  • Average diluted shares outstanding of 26.6 million
  • Full year capital expenditures of $110 million

    Same Store

  • Total revenues of $1.1 to $1.2 billion
  • New vehicle same store sales increasing 11.0%
  • Used vehicle same store sales increasing 6.0%
  • Service body and parts same store sales increasing 8.0%
  • Finance and insurance gross profit of $1,200 per unit

    These projections exclude the impact of future acquisitions, dispositions and non-core items. Actual results may be affected by items described under Forward-Looking Statements below.

    Second Quarter Earnings Conference Call and Updated Presentation

    The second quarter conference call may be accessed at 10:00 a.m. ET today by telephone at 877-407-8029. An updated presentation highlighting the second quarter results has been added to www.lithiainvestorrelations.com.

    To listen live on our website or for replay, visit www.lithiainvestorrelations.com and click on webcasts.

    About Lithia

    Lithia Motors, Inc. is the eighth largest automotive retailer in the United States. Lithia sells 29 brands of new vehicles and all brands of used vehicles at 101 stores in 12 states. Lithia also arranges finance, warranty, and credit insurance contracts; and provides vehicle parts, maintenance, and repair services at all of its locations.

    Sites

    www.lithia.com

    www.lithiainvestorrelations.com

    www.lithiacareers.com

    www.assuredservice.com

     
    Lithia Motors on Facebook

    http://www.facebook.com/LithiaMotors

     
    Lithia Motors on Twitter

    http://twitter.com/lithiamotors

     


    Forward-Looking Statements

    This press release includes “forward-looking statements” within the meaning of the "Safe-Harbor" provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding our goals, plans, projections and guidance regarding our financial position, results of operations, market position, pending and potential future acquisitions and business strategy, and often contain words such as “project,” “outlook,” "expect," "anticipate," "intend," "plan," "believe," “estimate,” “may,” "seek," “would,” “should,” “likely,” “goal,” “strategy,” “future,” “maintain,” “continue,” “remain,” “target” or "will" and similar references to future periods. Examples of forward-looking statements in this press release include, among others, statements regarding:

  • Expected operating results, such as improved store performance, maintaining incremental throughput above 50%, increasing same store F&I per unit and all projections set forth under the heading “Outlook for Third Quarter 2014” and “Outlook for Fourth Quarter 2014”; and
  • The increase in our annual revenues that we estimate will result from the dealerships that we acquired and from the DCH Auto Group transaction as set forth under the heading “Corporate Development”;
  • Our belief that the DCH Auto Group transaction will close in the fourth quarter; and
  • Anticipated availability of liquidity from our unfinanced operating real estate.

    By their nature, forward-looking statements involve risks and uncertainties because they relate to events that depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance, and our actual results of operations, financial condition and liquidity and development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements in this press release. The risks and uncertainties that could cause actual results to differ materially from estimated or projected results include, without limitation, future economic and financial conditions (both nationally and locally), changes in customer demand, our relationship with, and the financial and operational stability of, vehicle manufacturers and other suppliers, risks associated with our indebtedness (including available borrowing capacity, compliance with financial covenants and ability to refinance or repay indebtedness on favorable terms), risks associated with the DCH Auto Group transaction (including the risk that we may incur significant liabilities as a result of the transaction and the risk that the transaction may not close), government regulations, legislation and others set forth throughout Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2013, in particular, the risks and uncertainties described therein under the heading “Our ability to increase revenues through acquisitions depends on our ability to acquire and successfully integrate additional stores” and from time to time in our other filings with the SEC. We urge you to carefully consider this information and not place undue reliance on forward-looking statements. We undertake no duty to update our forward-looking statements, including our earnings outlook, which are made as of the date of this release.

    Non-GAAP Financial Measures

    This press release and the attached financial tables contain non-GAAP financial measures such as adjusted net income and diluted earnings per share from continuing operations, adjusted SG&A as a percentage of revenues and gross profit, adjusted operating margin, adjusted operating profit as a percentage of gross profit, and adjusted pre-tax margin. Non-GAAP measures do not have definitions under GAAP and may be defined differently by and not comparable to similarly titled measures used by other companies. As a result, we review any non-GAAP financial measures in connection with a review of the most directly comparable measures calculated in accordance with GAAP. We caution you not to place undue reliance on such non-GAAP measures, but also to consider them with the most directly comparable GAAP measures. We present cash flows from operations in the attached tables, adjusted to include the change in non-trade floor plan debt to improve the visibility of cash flows related to vehicle financing. As required by SEC rules, we have reconciled these measures to the most directly comparable GAAP measures in the attachments to this release. We believe the non-GAAP financial measures we present improve the transparency of our disclosures; provide a meaningful presentation of our results from core business operations, because they exclude items not related to core business operations and other non-cash items; and improve the period-to-period comparability of our results from core business operations.These presentations should not be considered an alternative to GAAP measures.

     
    Lithia Motors, Inc.

    Consolidated Statements of Operations (Unaudited)

    (In thousands except per share data)

     
          Three months ended         %
    June 30,IncreaseIncrease
    2014     2013(Decrease)(Decrease)
    Revenues:
    New vehicle retail $ 694,484 $ 569,487 $ 124,997 21.9 %
    Used vehicle retail 310,475 258,465 52,010 20.1
    Used vehicle wholesale 44,286 37,691 6,595 17.5
    Finance and insurance 43,838 34,218 9,620 28.1
    Service, body and parts 114,337 94,462 19,875 21.0
    Fleet and other 14,382   14,182   200   1.4  
    Total revenues 1,221,802 1,008,505 213,297 21.1
    Cost of sales:
    New vehicle retail 648,490 530,699 117,791 22.2
    Used vehicle retail 266,408 219,572 46,836 21.3
    Used vehicle wholesale 42,782 36,996 5,786 15.6
    Service, body and parts 58,155 47,769 10,386 21.7
    Fleet and other 13,667   13,636   31   0.2  
    Total cost of sales 1,029,502   848,672   180,830   21.3  
    Gross profit192,300159,83332,46720.3
    SG&A expense 125,463 109,283 16,180 14.8
    Depreciation and amortization 5,825   4,899   926   18.9  
    Income from operations61,01245,65115,36133.6
    Floor plan interest expense (3,215 ) (3,036 ) 179 5.9
    Other interest expense (1,869 ) (1,941 ) (72 ) (3.7 )
    Other income, net 1,146   584   562   96.2  
    Income from continuing operations before income taxes57,07441,25815,81638.3
    Income tax expense (21,904 ) (15,977 ) 5,927 37.1
    Income tax rate 38.4 % 38.7 %    
    Income from continuing operations$35,170$25,281$9,88939.1%
    Income from discontinued operations, net of tax 3,139   274   2,865   NM  
    Net income$38,309$25,555$12,75449.9%
     
    Diluted net income per share:
    Continuing operations $ 1.34 $ 0.97 $ 0.37 38.1 %
    Discontinued operations 0.11   0.01   0.10   NM  
    Net income per share $ 1.45   $ 0.98   $ 0.47   48.0   %
     
    Diluted shares outstanding 26,331 26,134 197 0.8 %
     
    NM – not meaningful
     
     
    Lithia Motors, Inc.

    Key Performance Metrics (Unaudited)

     
          Three months ended         %
    June 30,IncreaseIncrease
    2014     2013(Decrease)(Decrease)

    Gross margin

    New vehicle retail 6.6 % 6.8 % (20) bps
    Used vehicle retail 14.2 15.0 (80) bps
    Used vehicle wholesale 3.4 1.8 160 bps
    Finance and insurance 100.0 100.0 - bps
    Service, body and parts 49.1 49.4 (30) bps
    Fleet and other 5.0 3.8 120 bps
    Gross profit margin 15.7 15.8 (10) bps

     

    Unit sales

    New vehicle retail 20,446 17,024 3,422 20.1 %
    Used vehicle retail 16,086 14,074 2,012 14.3
    Total retail units sold 36,532 31,098 5,434 17.5
    Used vehicle wholesale 6,047 5,241 806 15.4
     

    Average selling price

    New vehicle retail $ 33,967 $ 33,452 515 1.5 %
    Used vehicle retail 19,301 18,365 936 5.1
    Used vehicle wholesale 7,324 7,192 132 1.8
     

    Average gross profit per unit

    New vehicle retail $ 2,250 $ 2,278 $ (28 ) (1.2 )%
    Used vehicle retail 2,739 2,763 (24 ) (0.9 )
    Used vehicle wholesale 249 133 116 87.2
    Finance and insurance 1,200 1,100 100 9.1
    Total vehicle(1) 3,706 3,621 85 2.3
     

    Revenue mix

    New vehicle retail 56.8 % 56.5 %
    Used vehicle retail 25.4 25.6
    Used vehicle wholesale 3.6 3.7
    Finance and insurance, net 3.6 3.4
    Service, body and parts 9.4 9.4
    Fleet and other 1.2 1.4
     

    Adjusted

    Adjusted

    Three months ended

    Three months ended

    June 30,

    June 30,

    Other metrics

    2014201320142013
    SG&A as a % of revenue 10.2 % 10.5 % 10.3 % 10.8 %
    SG&A as a % of gross profit 65.2 66.0 65.2 68.4
    Operating profit as a % of revenue 5.0 4.9 5.0 4.5
    Operating profit as a % of gross profit 31.8 30.9 31.7 28.6
    Pretax margin 4.7 4.5 4.7 4.1
    Net profit margin 2.9 2.7 2.9 2.5
     
    (1) – includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail
     
     
    Lithia Motors, Inc.

    Same Store Operating Highlights (Unaudited)

     
          Three months ended         %
    June 30,IncreaseIncrease
    2014     2013(Decrease)(Decrease)

    Revenues

    New vehicle retail $ 632,785 $ 566,862 $ 65,923 11.6 %
    Used vehicle retail 285,555 257,754 27,801 10.8
    Used vehicle wholesale 41,937 37,692 4,245 11.3
    Finance and insurance 39,892 34,139 5,753 16.9
    Service, body and parts 103,770 94,034 9,736 10.4
    Fleet and other   12,663     14,182     (1,519 ) (10.7 )
    Total revenues $ 1,116,602 $ 1,004,663 $ 111,939 11.1
     

    Gross profit

    New vehicle retail $ 41,711 $ 38,588 $ 3,123 8.1 %
    Used vehicle retail 41,011 38,799 2,212 5.7
    Used vehicle wholesale 1,444 748 696 93.0
    Finance and insurance 39,892 34,139 5,753 16.9
    Service, body and parts 50,988 46,452 4,536 9.8
    Fleet and other   639     546     93   17.0
    Total gross profit $ 175,685 $ 159,272 $ 16,413 10.3
     

    Gross margin

    New vehicle retail

    6.6

    %

    6.8

    %

    (20) bps

    Used vehicle retail 14.4 15.1 (70) bps
    Used vehicle wholesale 3.4 2.0 140 bps
    Finance and insurance 100.0 100.0 - bps
    Service, body and parts 49.1 49.4 (30) bps
    Fleet and other 5.0 3.8 120 bps
    Gross profit margin 15.7 15.9 (20) bps
     

    Unit sales

    New vehicle retail

    18,379 16,937 1,442

    8.5

    %

    Used vehicle retail 14,709 14,033 676 4.8
    Total retail units sold 33,088 30,970 2,118 6.8
    Used vehicle wholesale 5,649 5,241 408 7.8
     

    Average selling price

    New vehicle retail $ 34,430 $ 33,469 $ 961 2.9 %
    Used vehicle retail 19,414 18,368 1,046 5.7
    Used vehicle wholesale 7,424 7,192 232 3.2
     

    Average gross profit per unit

    New vehicle retail $ 2,269 $ 2,278 $ (9 ) (0.4 )%
    Used vehicle retail 2,788 2,765 23 0.8
    Used vehicle wholesale 256 143 113 79.0
    Finance and insurance 1,206 1,102 104 9.4
    Total vehicle(1) 3,749 3,625 124 3.4
     
    (1) – includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail
     
    Lithia Motors, Inc.

    Consolidated Statements of Operations (Unaudited)

    (In thousands except per share data)
     
          Six months ended         %
    June 30,IncreaseIncrease
    2014     2013(Decrease)(Decrease)
    Revenues:
    New vehicle retail $ 1,274,006 $ 1,062,928 $ 211,078 19.9 %
    Used vehicle retail 612,368 497,693 114,675 23.0
    Used vehicle wholesale 86,979 77,197 9,782 12.7
    Finance and insurance 83,469 65,881 17,588 26.7
    Service, body and parts 218,954 184,902 34,052 18.4
    Fleet and other   24,132     22,984     1,148   5.0  
    Total revenues 2,299,908 1,911,585 388,323 20.3
    Cost of sales:
    New vehicle retail 1,188,988 989,493 199,495 20.2
    Used vehicle retail 527,505 423,827 103,678 24.5
    Used vehicle wholesale 84,144 75,528 8,616 11.4
    Service, body and parts 111,940 94,430 17,510 18.5
    Fleet and other   22,970     22,036     934   4.2  
    Total cost of sales   1,935,547     1,605,314     330,233   20.6  
    Gross profit364,361306,27158,09019.0
    SG&A expense 247,292 210,414 36,878 17.5
    Depreciation and amortization   11,332     9,620     1,712   17.8  
    Income from operations105,73786,23719,50022.6
    Floor plan interest expense (6,199 ) (6,485 ) (286 ) (4.4 )
    Other interest expense (3,843 ) (4,302 ) (459 ) (10.7 )
    Other income, net   2,083     1,385     698   50.4  
    Income from continuing operations before income taxes97,77876,83520,94327.3
    Income tax expense (37,914 ) (29,672 ) 8,242 27.8
    Income tax rate  

    38.8

    %

      38.6 %    
    Income from continuing operations$59,864$47,163$12,70126.9%
    Income from discontinued operations, net of tax   3,179     447     2,702   NM  
    Net income$63,043$47,610$15,43332.4%
     
    Diluted net income per share:
    Continuing operations $ 2.27 $ 1.81 $ 0.46 25.4 %
    Discontinued operations   0.12     0.01     0.11   NM  
    Net income per share $ 2.39   $ 1.82   $ 0.57   31.3 %
     
    Diluted shares outstanding 26,326 26,120 206 0.8 %
     
    NM – not meaningful
     
     
    Lithia Motors, Inc.

    Key Performance Metrics (Unaudited)

     
          Six months ended         %
    June 30,IncreaseIncrease
    2014     2013(Decrease)(Decrease)

    Gross margin

    New vehicle retail 6.7 % 6.9 % (20) bps
    Used vehicle retail 13.9 14.8 (90) bps
    Used vehicle wholesale 3.3 2.2 110 bps
    Finance and insurance 100.0 100.0 - bps
    Service, body and parts 48.9 48.9 - bps
    Fleet and other 4.8 4.1 70 bps
    Gross profit margin 15.8 16.0 (20) bps

     

    Unit sales

    New vehicle retail 37,720 31,744 5,976 18.8 %
    Used vehicle retail 32,402 27,735 4,667 16.8
    Total retail units sold 70,122 59,479 10,643 17.9
    Used vehicle wholesale 11,900 10,565 1,335 12.6

     

    Average selling price

    New vehicle retail $ 33,775 $ 33,484 $ 291 0.9 %
    Used vehicle retail 18,899 17,945 954 5.3
    Used vehicle wholesale 7,309 7,307 2 -
     

    Average gross profit per unit

    New vehicle retail $ 2,254 $ 2,313 $ (59 ) (2.6 )%
    Used vehicle retail 2,619 2,663 (44 ) (1.7 )
    Used vehicle wholesale 238 158 80 50.6
    Finance and insurance 1,190 1,108 82 7.4
     

    Revenue mix

    New vehicle retail 55.4 % 55.6 %
    Used vehicle retail 26.6 26.0
    Used vehicle wholesale 3.8 4.0
    Finance and insurance, net 3.6 3.5
    Service, body and parts 9.5 9.7
    Fleet and other 1.1 1.2
     
    AdjustedAs reported
    Six months endedSix months ended
    June 30,June 30,

    Other metrics

    2014201320142013
    SG&A as a % of revenue 10.6 % 10.8 % 10.7 % 11.0 %
    SG&A as a % of gross profit 66.7 67.5 67.9 68.7
    Operating profit as a % of revenue 4.8 4.7 4.6 4.5
    Operating profit as a % of gross profit 30.1 29.4 29.0 28.2
    Pretax margin 4.4 4.2 4.3 4.0
    Net profit margin 2.7 2.6 2.6 2.5
     
     
    Lithia Motors, Inc.

    Same Store Operating Highlights (Unaudited)

     
          Six months ended         %
    June 30,IncreaseIncrease
    2014     2013(Decrease)(Decrease)

    Revenues

    New vehicle retail $ 1,175,760 $ 1,060,303 $ 115,457 10.9 %
    Used vehicle retail 570,759 496,982 73,777 14.8
    Used vehicle wholesale 83,060 77,172 5,888 7.6
    Finance and insurance 77,322 65,810 11,512 17.5
    Service, body and parts 202,699 184,477 18,222 9.9
    Fleet and other   22,413     22,984     (571 )

    (2.5



    )

    Total revenues $ 2,132,013 $ 1,907,728 $ 224,285 11.8
     

    Gross profit

    New vehicle retail $ 78,404 $ 73,235 $ 5,169 7.1 %
    Used vehicle retail 79,820 73,765 6,055 8.2
    Used vehicle wholesale 2,758 1,781 977 54.9
    Finance and insurance 77,322 65,810 11,512 17.5
    Service, body and parts 98,906 90,277 8,629 9.6
    Fleet and other   1,086     947     139   14.7
    Total gross profit $ 338,296 $ 305,815 $ 32,481 10.6

     

    Gross margin

    New vehicle retail

    6.7

    %

    6.9

    %

    (20) bps

    Used vehicle retail 14.0 14.8 (80) bps
    Used vehicle wholesale 3.3 2.3 100 bps
    Finance and insurance 100.0 100.0 - bps
    Service, body and parts 48.8 48.9 (10) bps
    Fleet and other 4.8 4.1 70 bps
    Total gross profit 15.9 16.0 (10 bps)
     

    Unit sales

    New vehicle retail 34,323 31,657 2,666 8.4 %
    Used vehicle retail 29,964 27,694 2,270 8.2
    Total retail units sold 64,287 59,351 4,936 8.3
    Used vehicle wholesale 11,200 10,564 636 6.0
     

    Average selling price

    New vehicle retail $ 34,256 $ 33,493 $ 763 2.3 %
    Used vehicle retail 19,048 17,945 1,103 6.1
    Used vehicle wholesale 7,416 7,305 111 1.5
     

    Average gross profit per unit

    New vehicle retail $ 2,284 $ 2,313 $ (29 ) (1.3 )%
    Used vehicle retail 2,664 2,664 - -
    Used vehicle wholesale 246 169 77 45.6
    Finance and insurance 1,203 1,109 94 8.5
    Total vehicle(1) 3,707 3,616 91 2.5
     
    (1) – includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail
     
    Lithia Motors, Inc.

    Other Highlights (Unaudited)

          As of
    June 30,     December 31,     June 30,
    2014     2013     2013

    Days Supply(1)

    New vehicle inventory 71 74 76
    Used vehicle inventory 60 63 51
     
    (1) Days supply calculated based on current inventory levels, excluding in-transit vehicles, and a 30-day historical cost of sales level.
     

     

    Financial covenants

             
    RequirementAs of June 30, 2014
    Current ratio Not less than 1.20 to 1 1.29 to 1
    Fixed charge coverage ratio Not less than 1.20 to 1 4.22 to 1
    Leverage ratio Not more than 5.00 to 1 1.29 to 1
    Funded debt restriction Not more than $375 million$172.4 million
     
     
    Lithia Motors, Inc.

    Other Highlights (Unaudited)

          Three months ended     Six months ended
    June 30,June 30,
    2014     20132014     2013

    New vehicle unit sales brand mix

    Chrysler 27.6 % 29.9 % 28.5 % 30.5 %
    General Motors 14.5 16.2 14.3 16.1
    Toyota 13.8 14.6 13.7 14.7
    Subaru 9.2 7.6 9.4 7.6
    Honda, Acura 8.3 7.2 8.0 7.0
    BMW, MINI 6.5 6.4 6.3 6.4
    Ford 6.7 6.0 6.3 6.0
    Nissan 3.6 2.9 3.7 2.8
    Hyundai 3.1 2.7 3.1 2.8
    Volkswagen, Audi 2.8 2.3 2.6 2.1
    Mercedes 2.2 2.7 2.3 2.5
    Kia 1.0 0.5 0.9 0.6
    Mazda 0.4 0.5 0.4 0.5
    Other 0.3 0.5 0.5 0.4
     
    Three months endedSix months ended
    June 30,June 30,

     

    2014201320142013

    Revenue geographic mix

    Texas 24.0 % 25.0 % 24.0 % 25.3 %
    Oregon 21.9 20.5 22.0 20.7
    California 13.1 10.5 13.2 10.6
    Montana 8.0 8.8 8.2 8.9
    Alaska 7.5 8.2 7.1 7.7
    Washington 7.0 8.1 7.2 8.1
    Nevada 4.4 4.7 4.6 4.7
    Iowa 4.3 5.0 4.3 4.8
    Idaho 4.2 5.0 4.4 5.1
    North Dakota 2.3 2.6 2.2 2.5
    Hawaii 2.0 0.0 1.4 0.0
    New Mexico 1.3 1.6 1.4 1.6
     

    As of July 23, 2014

    Current store count mix

    # of stores% of total
    Chrysler 24 23.6 %
    General Motors 16 15.8
    Honda, Acura 11 10.9
    Toyota 10 9.9
    BMW, MINI 9 8.9
    Ford 6 5.9
    Subaru 5 5.0
    Hyundai 5 5.0
    Volkswagen, Audi 5 5.0
    Nissan 4 4.0
    Mercedes 3 3.0
    Other 3 3.0
     
     
    Lithia Motors, Inc.

    Consolidated Balance Sheets (Unaudited)

    (In thousands)

          June 30, 2014     December 31, 2013
    Cash and cash equivalents $ 28,203 $ 23,686
    Trade receivables, net 191,228 170,519
    Inventories, net 981,223 859,019
    Deferred income taxes 222 1,548
    Other current assets 12,028 15,251
    Assets held for sale   -     11,526  
    Total current assets$1,212,904$1,081,549
     
    Property and equipment, net 528,254 481,212
    Goodwill 65,004 49,511
    Franchise value 77,728 71,199
    Deferred income taxes 14,624 10,256
    Other non-current assets   41,613     31,394  
    Total assets$1,940,127   $1,725,121  
     
    Floor plan notes payable $ 20,598 $ 18,789
    Floor plan notes payable: non trade 806,684 695,066
    Current maturities of long-term debt 7,578 7,083
    Trade payables 56,384 51,159
    Accrued liabilities 112,742 94,143
    Liabilities related to assets held for sale   -     6,271  
    Total current liabilities$1,003,986$872,511
     
    Long-term debt 260,835 245,471
    Deferred revenue 48,918 44,005
    Other long-term liabilities   34,537     28,412  
    Total liabilities$1,348,276   $1,190,399  
     
    Class A common stock 266,172 268,255
    Class B common stock 319 319
    Additional paid-in capital 26,045 22,598
    Accumulated other comprehensive loss (1,259 ) (1,538 )
    Retained earnings   300,574     245,088  
    Total liabilities & stockholders' equity$1,940,127   $1,725,121  
     
     
    Lithia Motors, Inc.

    Summarized Cash Flow from Operations (Unaudited)

    (In thousands)

          Six months ended
    June 30,
    2014     2013
    Net income $ 63,043 $ 47,610
     
    Adjustments to reconcile net income to net cash provided by (used in) operating activities:
    Depreciation and amortization 11,332 9,620
    Stock-based compensation 3,259 2,603
    Loss on disposal of assets 62 33
    Gain on sale of franchise (5,744 ) -
    Deferred income taxes 2,840 825

    Excess tax benefit from share-based payment arrangements

    (6,058 ) (5,408 )
    (Increase) decrease:
    Trade receivables, net (20,709 ) (10,684 )
    Inventories (77,300 ) (48,899 )
    Other current assets 1,360 5,980
    Other non-current assets (7,311 ) (3,394 )
    Increase (decrease):
    Floor plan notes payable, net 368 3,384
    Trade payables 1,411 2,078
    Accrued liabilities 17,594 8,812

    Other long-term liabilities and deferred revenue

      11,659     11,889  
    Net cash provided by (used in) operating activities $ (4,194 ) $ 24,449  
     
     
    Lithia Motors, Inc.

    Reconciliation of Non-GAAP Cash Flow from Operations (Unaudited)

    (In thousands)

          Six months ended
    June 30,

    Net cash provided by (used in) operating activities

    2014     2013
    As reported $ (4,194 ) $ 24,449
    Floor plan notes payable, non-trade, net   112,910     5,989
    Adjusted $ 108,716   $ 30,438
     
     
    Lithia Motors, Inc.

    Reconciliation of Certain Non-GAAP Financial Measures (Unaudited)

    (In thousands, except for per share data)

     
          Three Months Ended June 30, 2014
        Acquisition     Tax    
    As reportedexpensesattributesAdjusted
    Selling, general and administrative $ 125,463 $ (163 ) $ - $ 125,300
     
    Income from operations 61,012 163 - 61,175
     

    Income from continuing operations before income taxes

    $ 57,074 $ 163 $ - $ 57,237
    Income tax expense   (21,904 )   (63 )   (73 )   (22,040 )
    Net income from continuing operations $ 35,170   $ 100   $ (73 ) $ 35,197  
     

    Diluted earnings per share from continuing operations

    $ 1.34 $ - $ - $ 1.34
    Diluted share count 26,331
     
    Three Months Ended June 30, 2013
    Legal
    accrualTax
    As reportedadjustmentattributeAdjusted
    Selling, general and administrative $ 109,283 $ (3,813 ) $ - $ 105,470
     
    Income from operations $ 45,651 $ 3,813 $ - $ 49,464
     

    Income from continuing operations before income taxes

    $ 41,258 $ 3,813 $ - $ 45,071
    Income tax expense   (15,977 )   (1,484 )   (228 )   (17,689 )
    Net income from continuing operations $ 25,281   $ 2,329   $ (228 ) $ 27,382  
     

    Diluted earnings per share from continuing operations

    $ 0.97 $ 0.09 $ (0.01 ) $ 1.05
    Diluted share count 26,134
     
    Lithia Motors, Inc.

    Reconciliation of Certain Non-GAAP Financial Measures (Unaudited)

    (In thousands, except for per share data)

     
          Six Months Ended June 30, 2014
        Reserve     Acquisition     Tax    
    As reportedadjustmentsexpensesattributeAdjusted
    Selling, general and administrative $ 247,292 $ (3,931 ) $ (163 ) $ - $ 243,198
     
    Income from operations 105,737 3,931 163 - 109,831
     

    Income from continuing operations before income taxes

    $ 97,778 $ 3,931 $ 163 $ - $ 101,872
    Income tax expense   (37,914 )   (1,545 )   (63 )   (73 )   (39,595 )
    Net income from continuing operations $ 59,864   $ 2,386   $ 100   $ (73 ) $ 62,277  
     

    Diluted earnings per share from continuing operations

    $ 2.27 $ 0.09 $ - $ - $ 2.36
    Diluted share count 26,326
     
    Six months ended June 30, 2013
    Legal accrualTax
    As reportedadjustmentattributeAdjusted
    Selling, general and administrative $ 210,414 $ (3,813 ) $ - $ 206,601
     
    Income from operations $ 86,237 $ 3,813 $ - $ 90,050
     

    Income from continuing operations before income taxes

    $ 76,835 $ 3,813 $ - $ 80,648
    Income tax expense   (29,672 )   (1,484 )   (228 )   (31,384 )
    Net income from continuing operations $ 47,163   $ 2,329   $ (228 ) $ 49,264  
     

    Diluted earnings per share from continuing operations

    $ 1.81 $ 0.09 $ (0.01 ) $ 1.89
    Diluted share count 26,120





    Lithia Motors, Inc.

    John North, 541-618-5748

    VP Finance and Controller


    Source: Lithia Motors, Inc.


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