Is the Q2 DFC profitability ($35M-$40M) a new benchmark, considering scale and cost efficiencies?

Chuck Lietz confirmed strong DFC results, validating the top-of-funnel strategy and economies of scale. He noted potential seasonality in H2 but expressed confidence in the forward growth trajectory and achieving long-term goals, including the 20% penetration rate. “I would say the second half, while we still are very optimistic that we can achieve similar types of profitability. I would say that there is seasonality that we will have to deal with that just happens as a normal matter of course, in the second half of the year, but again, we're still very confident about our forward-looking growth trajectory for DFC, and we're well on our way towards our path towards our long-term goals.”

How should investors think about the cadence of used GPU improvement in H2, given the strong Q2 results from dynamic pricing?

Bryan DeBoer emphasized finding the balance between volume and margins, driven by AI and field teams repricing cars. He stated that the Q2 performance highlights their forward-looking approach to achieve the FY26 goal of "nothing but net," leveraging the entire ecosystem. “I think this quarter really highlights how we're thinking about it looking forward. that we are finding the balance between volume and margins to ensure that we realize our '26 goal, which we've made very clear within our global store footprint that it's about nothing but net okay, and that nothing but net is becoming a reality because that net is what shows the benefits of the entire ecosystem that we built and the differentiation between other models.”

How much of the sequential SG&A improvement was due to volume leverage vs. cost savings, and is it sustainable?

Bryan DeBoer clarified that the improvement was primarily due to cost savings (job combinations, multi-functions, remote F&I, procurement) rather than volume leverage, as same-store volumes were slightly down. He highlighted that North American SG&A was 66.2%, potentially making Lithia #1 in the industry, and June saw a YoY decline in SG&A. “our North American SG&A was 66.2% and that we believe will be the first time that Lithia and Driveway returns to the #1 position in province as the lowest SG&A in North America... June, we had our first year-over-year quarter with lower SG&A in the month by almost 60 basis points.”

LAD

Lithia Motors (LAD) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Consumer Discretionary· Jul 29, 2026

Source: earnings call transcript

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

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

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

Category	Target	Timeline	Confidence
EPS per $1 billion of revenue	$2 high materiality	Long-term	High
DFC penetration	20% plus medium materiality	Long-term	High
DFC profitability	Similar to Q2, with seasonality medium materiality	H2 FY26	High
Used car volume growth (stores)	3% to 5% medium materiality	Full-year FY26	Medium
Driveway growth rate	High-teens medium materiality	Full-year FY26	Medium
New vehicle GPU	~$2,700-$2,800 high materiality	Near-term	High
Capital allocation (buybacks)	~1/3 of capital high materiality	Ongoing	High
Capital allocation (M&A)	~1/3 of capital high materiality	Ongoing	High
Consumer preference	More transparent, simple, convenient transactions low materiality	Ongoing	High
DFC earnings	Way beyond $100 million high materiality	Long-term	High
Free cash flow	$1.5 billion to $2 billion high materiality	Annual	High
Same-store sales growth	Consistent 5% high materiality	Annual	High
SG&A as a percentage of gross profit	Sub-60% high materiality	Long-term	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
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%

Deals & partnerships

Ridgeview Partners Acquisition 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

Tough year-over-year comparisons Q2 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 mix Q2 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 profitability H2 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 consumers Current

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-warranty Long-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 dealerships Future

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

SG&A as a percentage of gross profit

Q3 FY26

Current 68.6% (Q2 FY26)

Target Continued 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.

Find out whether LAD delivers this. Inve re-checks your case every morning.

Q&A highlights

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 read 6 chapters

Detailed narrative

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.

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.

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.

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.

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.

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.