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    LAD
    Earnings call· Jun 2026(Q2 FY26)

    LITHIA MOTORS Q2 FY26 earnings call LAD

    Jul 29, 2026 Source

    Executive summary

    Lithia Motors, Inc. Q2 FY26 — Record Earnings Driven by Strong Used Vehicle Profitability and SG&A Improvement

    Lithia Motors achieved record earnings in Q2 FY26, demonstrating the resilience of its diversified model through strong used vehicle profitability and significant SG&A improvements. The company's ecosystem, including Driveway Finance Corporation, contributed to robust cash generation, enabling substantial capital returns and strategic network growth. Management is focused on leveraging AI and operational efficiencies to drive towards a sub-60% SG&A target and capitalize on future volume improvements.

    Highlights

    6

    • Record revenues of $9.8 billion and adjusted diluted EPS of $10.03, up 9% YoY.

    • Used vehicle GPU improved $339 sequentially to $2,019, contributing to 1.2% growth in used vehicle gross profit.

    • After sales gross profit grew 3.1% on 1% revenue growth, with margins expanding 120 bps YoY to 59.2%.

    • Adjusted SG&A as a percentage of gross profit improved 290 basis points sequentially to 68.6%, with same-store SG&A dollars declining YoY.

    • Driveway Finance Corporation (DFC) delivered record originations of $884 million and income grew over 70% YoY to $37 million.

    • Share repurchases of $242 million, retiring approximately 4% of outstanding shares, with share count now 17% less than a year ago.

    Concerns

    3

    • Same-store revenues declined 1.6% and total gross profit declined 2.7% against a tough comparison to Q2 FY25.

    • New vehicle revenue declined 1.5% on 2.2% lower units due to a demanding comparison to last year's Q2 tariff pull forward.

    • Domestic brand new vehicle sales declined 7% and luxury declined 4%.

    Guidance & targets

    13
    CategoryTargetConfidence
    EPS per $1 billion of revenue
    $2
    high materiality
    High
    DFC penetration
    20% plus
    medium materiality
    High
    DFC profitability
    Similar to Q2, with seasonality
    medium materiality
    High
    Used car volume growth (stores)
    3% to 5%
    medium materiality
    Medium
    Driveway growth rate
    High-teens
    medium materiality
    Medium
    New vehicle GPU
    ~$2,700-$2,800
    high materiality
    High
    Capital allocation (buybacks)
    ~1/3 of capital
    high materiality
    High
    Capital allocation (M&A)
    ~1/3 of capital
    high materiality
    High
    Consumer preference
    More transparent, simple, convenient transactions
    low materiality
    High
    DFC earnings
    Way beyond $100 million
    high materiality
    High
    Free cash flow
    $1.5 billion to $2 billion
    high materiality
    High
    Same-store sales growth
    Consistent 5%
    high materiality
    High
    SG&A as a percentage of gross profit
    Sub-60%
    high materiality
    High

    Segment performance

    8
    SegmentRevenueYoYQoQMargin
    Company-wide (Same-Store)
    Resilient performance against toughest comparison of the year, lapping strong Q2 2025. Total vehicle GPUs rose sequentially.
    Total vehicle GPUs: $4,119 (up $200 sequentially from Q1)
    		declined 1.6%-1.6%—Total gross profit declined 2.7%
    Used Vehicles (Same-Store)
    Profitability strategy delivering, driven by dynamic pricing and ecosystem leverage. Key entry point for affordability and feeder to F&I, after-sales, and DFC.
    Used GPU: $2,019 (improved $339 sequentially from Q1)
    		—1.2% (gross profit)—Gross profit up 1.2%
    New Vehicles (Same-Store)
    Solid performance against demanding comparison to Q2 2025 tariff pull-forward. New vehicle GPU stable for third consecutive quarter.
    Units: down 2.2%New vehicle GPU: $2,718 (essentially flat with Q1)
    		declined 1.5%-1.5% (revenue)——
    New Vehicles (Imports)
    Import brands showed growth.
    		—5%——
    New Vehicles (Domestic)
    Domestic brands declined.
    		—-7%——
    New Vehicles (Luxury)
    Luxury brands declined.
    		—-4%——
    After Sales (Same-Store)
    Source of resiliency, high-quality earnings, and substantial gross profit. Largest business line, driving majority of operating profit with lower SG&A. Up against an 8.5% comp in Q2 FY25.
    Customer pay gross profit: up 2.6%Warranty gross profit: up 5.4%Contribution to total gross profit: 42.2%
    		growth of 1%3.1% (gross profit)—Margins expanding 120 basis points year-over-year to 59.2%
    U.K. Operations
    Momentum building, driven by network optimization, strong execution, and expanding Chinese OEM partnerships.
    SG&A as a percentage of gross: improved 200 basis points YoYUsed vehicles gross profit: up nearly 33%New vehicle units: grew 16%
    		—12% (gross profit)—Adjusted pretax income rose 78%

    Operational metrics

    41
    Adjusted diluted EPS
    $10.03up 9% YoY
    Q2 FY26

    Record adjusted diluted EPS.

    Adjusted SG&A as a percentage of gross profit
    68.6%290 bps improvement from Q1
    Q2 FY26

    On a same-store and consolidated basis. Reflects ability to maintain cost structure discipline.

    Personnel costs as percentage of gross profit
    improved 30 bpsimproved 30 bps
    Q2 FY26

    Personnel is the largest cost category.

    Same-store SG&A dollars
    declinedYoY
    Q2 FY26

    Reflects real structural changes, not one-time cuts.

    June SG&A percentage
    down 60 bpsvs prior year
    June FY26

    First year-over-year quarter with lower SG&A in the month.

    Financing operations income (DFC)
    $37 millionmore than doubling YoY (70% growth)
    Q2 FY26

    Record income for DFC.

    DFC originations
    $884 million
    Q2 FY26

    Record originations for DFC.

    DFC net interest margin
    4.8%up 20 bps YoY
    Q2 FY26

    Reflects business maturation and improved cost of funds.

    DFC managed receivables
    above $5 billion
    Q2 FY26

    Crossed the $5 billion mark this quarter.

    DFC North American penetration
    18%
    Q2 FY26

    Continuing steady climb toward long-term target of 20% plus.

    DFC average origination FICO scores
    748
    Q2 FY26

    Reflects disciplined underwriting.

    DFC front-end LTVs
    96%
    Q2 FY26

    Held steady, reflecting disciplined underwriting.

    Adjusted EBITDA
    $445 milliondown 2% YoY
    Q2 FY26

    Modest decline year-over-year.

    Share repurchases
    $242 million
    Q2 FY26

    Retired approximately 4% of outstanding shares.

    Share count reduction
    17% lessYoY
    YoY

    Share count is 17% less than one year ago.

    Dividend per share
    $0.70raised 23%
    Q2 FY26

    Reflects confidence in cash generation durability.

    Capital returned to shareholders (H1 FY26)
    more than $560 million
    H1 FY26

    Across buybacks and dividends.

    Acquisitions revenue
    $765 million
    H1 FY26

    Strategic acquisitions made in the first half of the year.

    Divestitures revenue
    $120 million
    H1 FY26

    Divested underperforming revenue, generating extra capital.

    Acquisition purchase price target
    15% to 30% of revenue
    Ongoing

    Target framework for acquisitions.

    Acquisition return on investment
    more than 25%
    Over a decade

    Returns achieved on acquisitions, well above stated hurdle rate.

    Pinewood AI cost savings (U.K.)
    447,000 hours
    Annualized

    Expected annualized savings from Pinewood AI solutions in the U.K., with 80% on the service side.

    North American SG&A as a percentage of gross profit
    66.2%
    Q2 FY26

    Believed to be the first time Lithia returns to #1 position for lowest SG&A in North America.

    Retail SAAR (country)
    down 4%
    YTD

    Market performance.

    New car market share gain
    3%
    YTD

    Lithia's new car sales were down 1% YTD vs market down 4%.

    Used car market share gain
    1%
    YTD

    Lithia's used car sales were flat YTD vs market down 1%.

    Used vehicles over 9 years old (market mix)
    63%
    Current

    Percentage of total used cars sold in the country.

    Used vehicles over 9 years old (Lithia mix)
    17%
    Current

    Lithia's mix of used vehicles over 9 years old, indicating a large opportunity.

    Certified pre-owned sales mix
    over 40%
    Q2 FY26

    Certified sales reached over 40% in the quarter.

    Average used vehicle value
    $17,000
    Current

    Implied average value for used vehicles, with potential for $1,700 extra GPU on bulk of business.

    New vehicle GPU
    $2,700-$2,800
    Q2 FY26

    Stable for the third consecutive quarter, without F&I.

    After sales gross margin
    59.3%up 160 bps
    Q2 FY26

    Driven by higher labor portion due to diversified propulsion systems.

    After sales gross margin guidance
    56%-57%
    Ongoing

    Prior guidance for after sales gross margin.

    Customer pay vs warranty gross profit growth (After Sales)
    Customer pay up 2.6%, Warranty up 5.4%
    Q2 FY26

    Warranty growth slightly higher due to longer warranty periods and franchise laws.

    New vehicle sales mix (electrified)
    over 50%
    Q2 FY26

    First quarter ever where new vehicle sales were made up over 50% by electrified vehicles.

    New vehicle sales mix (hybrid)
    46.5%
    Q2 FY26

    Percentage of total new vehicles that were hybrid.

    Tech stack cost reduction (Pinewood AI)
    20% and 50%
    Long-term

    Expected reduction in overall tech stack portfolio costs with Pinewood AI and other vendor savings.

    Service and parts growth (price vs volume)
    50-50
    Current

    Improvements coming equally from price and volume.

    Chinese brands contribution to U.K. lift
    about half
    Current

    Beneficial for new unit growth in the U.K.

    Intrinsic value for share buybacks
    $450-$500
    Current

    Management believes shares still have intrinsic undervalue at this price range.

    F&I per vehicle
    $1,811consistent
    Q2 FY26

    F&I was consistent, showing strong product attachment and rising total financing penetration, adjusted for DFC shift.

    Industry KPIs

    4
    MetricValueDetails
    Sg a OPEX ratio68.6%%
    Comparable sales-1.6%%
    Gross margin drivers59.2%%
    Share buyback capital return$242 millionUSD

    Deals & partnerships

    1
    Ridgeview PartnersAcquisition of Pinewood AI

    Ridgeview Partners is acquiring Pinewood AI; Lithia's strategic alignment is unchanged, and they continue to build on the same platform with shared priorities.

    Risks & headwinds

    6
    Tough year-over-year comparisonsQ2 FY26

    Same-store revenues declined 1.6% and total gross profit declined 2.7%

    Mitigation: Diversified model, strengthening used vehicle profitability, and after-sales performance provided balance.

    Cyclical conditions in new vehicle brand mixQ2 FY26

    Domestic declined 7% and luxury declined 4%

    Mitigation: Viewed as cyclical, with most difficult comparison now behind them; teams carry momentum into H2.

    Seasonality in DFC profitabilityH2 FY26

    Seasonality that we will have to deal with that just happens as a normal matter of course, in the second half of the year

    Mitigation: Still very confident about forward-looking growth trajectory for DFC and path towards long-term goals.

    Affordability pressures for consumersCurrent

    Gas prices are astronomical

    Mitigation: Focus on value auto cars, certified pre-owned, and offering non-OEM parts post-warranty to retain customers.

    Potential for defection from after-sales business post-warrantyLong-term

    If we can service our customers' car for 10 years rather than 3 to 5 years, we all win a lot more.

    Mitigation: Selling non-OEM parts post-warranty, delighting customers on the service side, leveraging mydriveway portal for continuous engagement.

    Chinese OEM partnerships in North America requiring exclusive dealershipsFuture

    Specific exclusive dealerships that could cost $5 million, $10 million, $20 million to sell that brand with no aftersales business.

    Mitigation: Not an early adopter as a dealer for such models, as aftersales is crucial for covering fixed costs.

    What to watch in Q3 FY26

    5

    SG&A as a percentage of gross profit

    Q3 FY26
    Current68.6% (Q2 FY26)
    TargetContinued sequential improvement, closer to sub-60% target

    Why it matters

    SG&A reduction is a key driver for earnings leverage and achieving long-term profitability targets.

    Adjusted SG&A as a percentage of gross profit was 68.6%, a 290 basis points improvement from the first quarter... Each quarter of this execution moves us closer to our sub-60% SG&A target.

    Q&A highlights

    5

    How much of the 200 bps SG&A improvement in the U.K. is from Pinewood AI, and what are the expectations for the U.S. rollout?

    Bryan DeBoer stated that about half of the 200 bps SG&A improvement in the U.K. was driven by Pinewood AI solutions. He highlighted the smooth integration in the U.K. and the potential for 10x greater benefits in the U.S. due to its larger cost structure, contributing to the sub-60% SG&A target.

    “The 200 basis points that we mentioned in the U.K. is about half driven off of the new Pinewood AI solutions... the read-through in the United States of having 10x the expense and cost structure means that those benefits from the progress that we're making in the U.K. are pretty easy read-throughs into the United States, which will be one of the catalysts and the engines to drive us to a sub-60% SG&A.”

    asked by Michael Ward · answered by Bryan DeBoer

    2 min read6 chapters

    Detailed Narrative

    01

    Ecosystem Reinforcement and Diversification

    Lithia's business model is designed for each segment to reinforce others, leading to strong contributions across all areas in Q2 FY26. This includes DFC financing customers who become service clients and trade-in providers, creating a compounding effect on relationships and earnings. The company's diversified earnings mix, with strengthening used vehicle profitability and robust after-sales performance, provided balance against challenging year-over-year comparisons.

    02

    Strategic Cost Management and AI Integration

    The company achieved significant sequential improvements in SG&A as a percentage of gross profit, driven by structural changes like combined roles, remote functions, and back-office automation. Early contributions from Pinewood AI tools in the U.K. are expected to scale globally, with a North American rollout planned for later this year. This technology is anticipated to deliver substantial cost savings and operational efficiencies, moving the company closer to its sub-60% SG&A target.

    03

    Driveway Finance Corporation (DFC) Scaling

    DFC continues its exponential growth, achieving record originations and more than doubling its profitability year-over-year. With managed receivables exceeding $5 billion and penetration approaching the 20% target, DFC is successfully converting vehicle sales into recurring, countercyclical income. Its disciplined underwriting, reflected in high FICO scores and stable LTVs, contributes to strong credit performance and expanding net interest margins.

    04

    Capital Allocation Strategy

    Lithia maintains a consistent capital allocation philosophy, prioritizing share repurchases due to shares trading below intrinsic value. The company bought back $242 million of stock, reducing outstanding shares by 4% this quarter and 17% over the past year. Strategic acquisitions totaling $765 million in revenue were made, alongside divestitures of $120 million in underperforming assets, demonstrating a balanced approach to growth and shareholder returns.

    05

    U.K. Operations and Chinese OEM Partnerships

    The U.K. segment showed strong momentum, with gross profit up 12% and adjusted pretax income rising 78%. This growth was partly driven by a 33% increase in used vehicle gross profit and a 16% increase in new vehicle units, supported by expanding Chinese OEM partnerships. These partnerships allow Lithia to capture growth and position itself for future expansion with these manufacturers, while maintaining a nimble, low-capital approach to market entry.

    06

    Electrified Vehicle Sales Trend

    Lithia reported a significant shift in its new vehicle sales mix, with electrified vehicles (hybrids, plug-in hybrids, BEVs) accounting for over 50% of new vehicle sales for the first time in Q2. Hybrids alone constituted 46.5% of total new vehicles. This trend is seen as beneficial for after-sales business due to longer warranty periods and the service needs of diverse propulsion systems, contributing to the stability and growth of the after-sales segment.

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