Skip to content
    LAD
    Earnings call· Mar 2026(Q1 FY26)

    LITHIA MOTORS Q1 FY26 earnings call LAD

    Apr 29, 2026 Source

    Executive summary

    Lithia Motors Q1 FY26 — Record Revenue and Strong Capital Returns Amidst Dynamic Market

    Lithia Motors delivered record revenue and strong adjusted EPS in Q1 FY26, leveraging its diversified omnichannel model to navigate a dynamic macro environment. The company demonstrated operational resilience through robust aftersales growth, sequential improvement in used vehicle GPU, and record DFC originations. Management remains focused on cost discipline and strategic capital allocation, including significant share repurchases, while continuing to integrate technology for future efficiency gains.

    Highlights

    5

    • Achieved record revenues of $9.3 billion, demonstrating operational resilience.

    • Adjusted diluted EPS reached $7.34, reflecting high-quality earnings.

    • Driveway Finance Corporation (DFC) delivered record originations and 71% year-over-year growth in financing operation income to $21 million.

    • Used vehicle revenue grew 4.6% on a same-store basis, with sequential GPU improvement.

    • Repurchased approximately 4% of outstanding shares for $259 million, returning significant capital to shareholders.

    Concerns

    4

    • Same-store revenues were down 1.7% and total gross profit down 2.3% year-over-year due to challenging comparisons and tariff avoidance pull-forward in Q1 2025.

    • New vehicle revenue declined 7.1% on a 7.1% unit decline, with new vehicle GPU down $227 year-over-year.

    • Adjusted SG&A as a percentage of gross increased to 71.5% from 68.2% a year ago, reflecting lower new vehicle volumes and normalizing GPUs.

    • Used GPU was down $115 year-over-year to $1,680, though up sequentially.

    Guidance & targets

    2
    CategoryTargetConfidence
    DFC Penetration Rate
    20-plus percent
    high materiality
    High
    Adjusted SG&A as a percentage of gross profit
    mid- to high 50 percentile range
    high materiality
    Medium

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    North America Vehicle Operations (Same-Store)
    Same-store results reflect challenging year-over-year comparisons and tariff avoidance pull-forward in Q1 2025. Used vehicle performance showed industry-leading trajectory and sequential GPU improvement. Aftersales continued stable, broad-based growth with margin expansion.
    New vehicle revenue: -7.1%New vehicle units: -7.1%New vehicle GPU: $2,722New vehicle GPU YoY change: -$227New vehicle GPU sequential change: -$44 (from $2,766 in Q4)Luxury brand revenue: -10.2%Domestic brand revenue: -8.7%Import brand revenue: -5.4%Used vehicle revenue: +4.6%Used vehicle units: +0.6%Used vehicle GPU: $1,680Used vehicle GPU YoY change: -$115Used vehicle GPU sequential change: +$105 (from $1,575 in Q4)F&I per retail unit: $1,813New vehicle day supply: 49 days (down from 54 days in Q4)Used vehicle day supply: 47 days (compared to 48 days in Q4)Aftersales revenue: +3.8%Aftersales gross profit: +5.7%Aftersales margin: 58.7%Customer pay gross profit: +6.5%Warranty gross profit: +5%
    		Down 1.7%-1.7%—Total gross profit down 2.3%
    U.K. Operations
    Delivered strong results with significant gross profit growth and SG&A efficiency improvements, building on 2025 momentum. Diversification and strategic brand adjustments contributed to performance.
    Gross profit: +12.5%SG&A as a percentage of gross profit improvement: 440 basis points
    		———Adjusted pretax income grew 78%
    Driveway Finance Corporation (DFC)
    Scaled profitably with record originations and improving loss provisions. Portfolio reached $5 billion, with efficient securitization and strong credit performance, leveraging unique position at the top of the demand funnel.
    Financing operation income growth YoY: +71%Loan originations: $840 million (record)Net interest margin: 4.8%Net interest margin sequential change: +20 basis pointsNorth American penetration: 18% (record)Annualized provision rate: 3%Average origination FICO score: 750Average origination LTV: 95%Portfolio size: $5 billion
    		———Financing operation income: $21 million

    Operational metrics

    9
    Used Vehicle GPU Delta (Customer vs. Auction Sourced)
    $1,500vs. prior delta of $1,000-$1,100
    Q1 FY26

    Difference in GPU between customer-acquired units and auction-sourced units, highlighting the importance of trade-ins for profitability.

    Value Auto Car Average Price
    $15,000
    Q1 FY26

    Average price for affordable cars in the value auto segment, a focus area for used vehicle strategy.

    Used Car Average Price Range
    $25,000-$30,000
    Q1 FY26

    Average price range for used vehicles, used in context of potential pricing gains and market comparisons.

    Potential Used Car Pricing Gain
    $1,250
    Q1 FY26

    Potential additional GPU per used vehicle if pricing is optimized to match 1-price used car retailers, addressing underpricing issues.

    Industry SAAR (Long-term Trend)
    $16 millionvs. current 15.8 million
    Long-term

    Analyst's view of long-term SAAR trend, contrasted with management's hope for 17 million units per year.

    GPU Decrease per Unit (Sequential)
    $150-$200per quarter
    Last 4 quarters

    Average sequential GPU decrease per unit over the last four quarters, impacting SG&A leverage and requiring active management.

    Acquisition Revenue Multiple (High End)
    120%vs. company's 10%-30% target
    Recent

    Example of high acquisition multiples observed in the market, which Lithia avoids due to return on investment concerns.

    Historical Manufacturer Incentives
    $6,000-$7,000vs. current <$4,000
    Historical

    Past levels of manufacturer incentives, which could help absorb negative equity if they return to these levels.

    UK Chinese Brand Entry Price
    $50,000
    Recent

    Low entry price for adding new Chinese OEM brands in the UK, primarily for signage, enabling diversification.

    Industry KPIs

    7
    MetricValueDetails
    Sg a OPEX ratio71.5%%
    Comparable sales-1.7%%
    Per unit economics$1,680USD
    Store count growthNet $500 millionUSD
    Gross margin driversTotal gross profit down 2.3%%
    Share buyback capital return$259 millionUSD
    Inventory position markdown risk49 daysdays

    Deals & partnerships

    3
    Pinewood AIStrategic partnership to transform customer experience and integrate AI platform across North American stores.

    Jointly working to bring the Pinewood AI platform to all North American stores, with a pilot in the U.S. later this year. Pinewood AI is expected to enable significant cost savings and productivity gains, similar to its impact in the U.K.

    VariousAdded import and luxury franchises in attractive U.S. markets and diversified U.K. portfolio with emerging Chinese OEM brands.

    Disciplined and strategic acquisition activity in Q1 FY26, focusing on accretive opportunities.

    VariousNet of divestitures, added $500 million in revenue this year.

    One more store in North America considered not part of network strategy will be divested. UK portfolio is fully optimized.

    Risks & headwinds

    5
    Challenging year-over-year comparisons and tariff avoidance pull-forwardQ1 FY26

    Same-store revenues down 1.7%, total gross profit down 2.3%.

    Mitigation: Operational resilience of diversified model, focus on cost efficiency and volume growth.

    Dynamic macro backdrop and geopolitical climateOngoing

    New vehicle revenue declined 7.1% on 7.1% unit decline; SAAR at 15.8 million.

    Mitigation: Focus on operational discipline, hoping for market stabilization and return to 17 million SAAR with improved affordability.

    Negative equity in trade-insOngoing

    Customers writing checks for around $2,000; average disequity in stores is $2,000 higher than e-commerce platform approval.

    Mitigation: Leveraging new car incentives to absorb disequity, expertise of in-store finance teams, and disciplined DFC lending strategies.

    High acquisition multiples in the marketOngoing

    Some deals selling for 120% of revenue, compared to Lithia's target of 15%-30% of revenue.

    Mitigation: Maintaining disciplined acquisition strategy, prioritizing share repurchases when valuations are unattractive.

    Chinese OEM strategy in North AmericaFuture

    Potential for 50%-100% tariffs in Canada; exclusive store model in Canada (vs. non-exclusive in UK) could lead to unprofitable operations due to lack of aftersales volume.

    Mitigation: Taking a 'wait-and-see' approach on pioneering exclusive facilities for Chinese OEMs in North America, learning from UK experience.

    What to watch in Q2 FY26

    5

    SG&A as a percentage of gross profit

    Next quarter
    Current71.5%
    TargetContinued sequential improvement

    Why it matters

    Management is actively rebalancing cost structures and implementing structural initiatives; continued improvement is key to profitability.

    Adjusted SG&A as a percentage of gross was 71.5%. And while we historically see this metric increase in the first quarter, this year, we held essentially flat sequentially, a sign that the cost discipline is gaining traction.

    Q&A highlights

    6

    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

    2 min read5 chapters

    Detailed Narrative

    01

    Operational Resilience and Diversified Model

    The company highlighted its ability to sustain earnings and cash flow through its omnichannel platform, even when parts of the business face pressure. This was demonstrated by solid revenue growth and high-quality earnings despite a dynamic macro backdrop and challenging year-over-year comparisons. The ecosystem approach, including DFC and aftersales, provides countercyclical earnings and multiplies opportunities with every incremental customer.

    02

    Strategic Cost Management and Pinewood AI Rollout

    Lithia is actively rebalancing cost structures, tightening variable compensation, and aligning staffing to drive throughput. Structural initiatives include technology investments, vendor consolidation, and back-office automation. The Pinewood AI platform is being piloted in the U.S. for DMS and AI technology, aiming to simplify processes, increase retention, and support operational efficiency, with a full rollout expected to take until 2028. This initiative is expected to significantly contribute to SG&A reduction.

    03

    Used Vehicle Strategy and Pricing Discipline

    The company achieved a 1.25% used-to-new ratio, emphasizing the importance of procuring vehicles through trade-ins. Sequential used GPU improved significantly due to dynamic pricing efforts on value auto cars and low-mileage vehicles. The expanded ecosystem (Driveway, Green Cars) allows for broader market reach and improved pricing models, addressing historical underpricing issues and aiming to capture an estimated $1,250 in potential pricing gains per unit.

    04

    UK Performance and Chinese OEM Strategy

    The UK operations delivered strong results with gross profit up 12.5% and adjusted pretax income up 78%, driven by effective leadership, network optimization, and diversification. The company is cautiously approaching Chinese OEM expansion in North America, noting that successful UK integration involved non-exclusive dealerships and a focus on ICE/hybrid vehicles, unlike the current EV-centric approach in Canada/US, which presents profitability challenges due to lack of established aftersales volume.

    05

    Capital Allocation and Share Repurchases

    Lithia maintains a consistent capital allocation philosophy, prioritizing returns for shareholders. With shares trading at a discount, the company aggressively repurchased $259 million of shares, retiring approximately 4% of outstanding shares. This is balanced with strategic acquisitions of import and luxury franchises and organic investments, leveraging strong cash generation and a robust balance sheet, while avoiding deals with excessively high revenue multiples (e.g., 120%).

    AI-generated summary of the company’s earnings call. Not investment advice.