Lithia Earnings: Growth Story Remains Robust as the Company Grows While Also Buying Back Stock

Lithia’s third quarter gave us no reason to change our fair value estimate as the firm’s growth story remains attractive. Adjusted diluted EPS of $8.21 beat the $7.60 LSEG consensus and fell 11% year over year, which is not concerning as sector profits are normalizing after the chip shortage allowed excessive new vehicle gross profit per unit. Same-store revenue fell 6.2%, mostly from a 14.6% used vehicle decline, but same-store new vehicle sales revenue rose 1.3%. Same-store new vehicle GPU declined 27.2% to $3,188 and to $5,170, including the lucrative finance and insurance segment. Management thinks this combined new vehicle GPU figure will eventually normalize in the $4,200-$4,500 range. We believe US industry new light-vehicle inventories will increase to at least the low three million unit range, up from over 2.8 million at the end of the third quarter. Lithia’s same-store new unit sales grew 2% while used fell 9.6%.