Lithia Motors (LAD) Q1 FY26 earnings call: guidance and Q&A

Inquired about the potential for SG&A improvement in acquired stores, noting a potential $2/share impact for every 100 bps improvement, and the role of Pinewood AI in accelerating integration and efficiency.

Bryan confirmed the potential for significant SG&A improvement, highlighting efforts to redesign sales departments from 4 layers to 2, combine jobs, and oversee multiple departments. Tina mentioned piloting Pinewood DMS in the U.S. later this year and AI technology in both U.S. and U.K., expecting it to simplify processes and improve efficiency.

“I think it's about $31 million, $32 million per dollar. So we are getting some pretty good traction on cost management.”

asked by Michael Ward · answered by Bryan DeBoer

Asked about the SG&A to gross profit trajectory within the quarter (month-by-month) and any guidepost for the full year.

Bryan noted a softer January, with February and March hitting or exceeding forecasts in North America and the U.K. He stated the long-term goal is to drive SG&A towards the mid- to high 50 percentile range, emphasizing the teams' responsiveness to market conditions.

“I would probably say this more, Ryan, that I think our teams got the attention. They're responsive, they're dynamic, and they've got they've got the con and they can make the decisions as they see what happens in the market.”

asked by Ryan Sigdahl · answered by Bryan DeBoer

Questioned if DFC penetration could go higher than the 20% target, given some peers are significantly higher.

Chuck Lietz stated that while 18% penetration was achieved, the 20%+ target is still valid, especially with a focus on used car growth where DFC historically performs better. He acknowledged new vehicle penetration holds them back compared to some peers but sees upside beyond 20%.

“But we definitely see positive upside to the 20% plus that we're targeting.”

asked by Ryan Sigdahl · answered by Charles Lietz

Asked about the prioritization between used car volumes and GPUs, and how the company approaches profitability, particularly regarding sequential GPU improvement.

Bryan explained that sequential used car GPU improved significantly due to repricing efforts on value auto cars and low-mileage vehicles. He highlighted the ecosystem's ability to expand market reach beyond typical store footprints, allowing for better pricing.

“If you look sequentially quarter-over-quarter, including F&I, our used cars moved from $2,830 in Q4 and to $3,309. It was up $470.”

asked by Rajat Gupta · answered by Bryan DeBoer

Inquired about the expense impact during the Pinewood AI rollout and how it affects the timing of reaching medium-term SG&A targets (60-65%).

Bryan stated the UK rollout was smooth with no additional costs, taking about 2 quarters for 150 businesses. He expects similar for North America, with a 2-month integration period per manufacturer. He clarified Pinewood AI will help move SG&A from mid-60s to mid-50s, but other initiatives (vendor/compensation management, job combinations, remote F&I) are driving current improvements.

“Pinewood is going to help us take it from mid-60s to mid-50s, okay? And I think that's how we think about it.”

asked by John Saager · answered by Bryan DeBoer

Asked about the impact of negative equity on recent volumes and conversion rates, particularly if customers are reluctant to write checks for trade-ins.

Bryan acknowledged negative equity has climbed but is subsiding. He explained that being 'up funnel' (new/certified used cars) allows them to absorb disequity through incentives. He noted that while customers still write checks (around $2,000), the traditional dealer network is effective at managing this, with their stores approving $2,000 higher disequity than the e-commerce platform.

“Our average disequity that we're focused on in the stores is $2,000 higher than what our AI and Driveway technology approves in the e-commerce platform of driveway.com.”

asked by Bret Jordan · answered by Bryan DeBoer