Lithia Motors, Inc (LAD)

[Drmicrocap]

Lithia Reports Adjusted EPS of $1.86 for Second Quarter of 2015; Revenues Increase 63%

Declares $0.20 per Share Dividend for Second Quarter

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Marketwired
Lithia Motors
July 22, 2015 7:29 AM








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MEDFORD, OR--(Marketwired - Jul 22, 2015) - Lithia Motors, Inc. ( NYSE : LAD ) reported adjusted net income of $49.4 million for the second quarter of 2015, the highest quarterly net income in company history and a 40% increase over the prior year period.

2015 second quarter adjusted net income was $1.86 per diluted share. This compares to 2014 second quarter adjusted net income from continuing operations of $35.2 million, or $1.34 per diluted share.

Unadjusted net income from continuing operations for the second quarter of 2015 was $51.2 million, or $1.93 per diluted share, compared to $35.2 million, or $1.34 per diluted share, for the second quarter of 2014. As shown in the attached non-GAAP reconciliation tables, the 2015 second quarter adjusted results exclude a $0.07 net benefit from non-core items related to a gain on the sale of a store, asset impairment charges related to real estate and a net benefit on an equity investment. The 2014 second quarter adjusted results from continuing operations exclude non-core charges related to acquisition expenses for the pending DCH combination offset by a non-core benefit resulting from a tax attribute, resulting in no change to earnings per share.

Second quarter 2015 revenue from continuing operations increased $775 million, or 63%, to $2.0 billion from $1.2 billion for the second quarter of 2014.

Second Quarter-over-Quarter Operating Highlights:
•Total same store sales increased 11%
•New vehicle same store sales increased 8%
•Used vehicle retail same store sales increased 16%
•Service, body and parts same store sales increased 10%
•Same store F&I per unit increased $78 to $1,280
•Adjusted SG&A expense as a percentage of gross profit was 66.6%



"Our second quarter earnings were the highest quarterly earnings in company history," said Bryan DeBoer, President and CEO. "Total same store sales grew double digits, led by a 16% increase in used vehicle sales. Total revenues increased 63% and adjusted earnings per share increased 39% over the prior year period. Our store leaders remain focused on continuing to capture more new vehicle market share, increasing used vehicle unit volume and growing service revenue while providing an exceptional customer experience. Within both DCH and Lithia, many opportunities remain to improve store performance and to find accretive acquisitions."

For the first six months of 2015, revenue from continuing operations increased 65% to $3.8 billion from $2.3 billion in 2014.

For the first six months of 2015, adjusted net income per diluted share increased 38% to $3.26 from $2.36 for the first six months of 2014. Unadjusted net income from continuing operations was $3.47 per diluted share for the first six months of 2015, compared to $2.27 per diluted share for the first six months of 2014.

Chris Holzshu, SVP and CFO, said, "Adjusted SG&A as a percentage of gross profit was 66.6% in the second quarter of 2015, bringing the first half of the year down to 68.8%. DCH has been able to reduce selling costs more quickly than we anticipated. As we continue to integrate operations, we are targeting consolidated SG&A as a percentage of gross profit in the mid-60s on a full year basis. Additionally, same store F&I per unit was $1,280 per unit, an increase of $78 over the prior year and the best result in company history. We still believe opportunity remains to improve this number given continued focus by our store personnel."

Balance Sheet Update
We ended the second quarter with $23 million in cash and $168 million in available credit on our credit facilities. Additionally, approximately $156 million of our operating real estate is currently unfinanced, which could provide an estimated additional $117 million in available liquidity, for total potential liquidity of $308 million.

Dividend Payment
Our Board of Directors has approved a dividend of $0.20 per share related to second quarter 2015 financial results. We will pay the dividend August 21, 2015 to shareholders of record on August 7, 2015.

2015 Outlook
We project 2015 third quarter earnings of $1.83 to $1.87 per diluted share and 2015 full year earnings of $6.63 to $6.72 per diluted share. Both projections are based on the following annual assumptions:

Continuing Operations Projections
•Total revenues of $7.6 to $7.8 billion
•New vehicle sales increasing 45.0%
•New vehicle gross margin of 5.9% to 6.1%
•Used vehicle sales increasing 40.0%
•Used vehicle gross margin of 12.6% to 12.8%
•Service body and parts sales increasing 42.0%
•Service body and parts gross margin of 48.8% to 49.2%
•Finance and insurance gross profit of $1,200 per unit
•Tax rate of 40.0%
•Average diluted shares outstanding of 26.5 million



Same Store Projections
•Total revenues of $5.7 to $5.9 billion
•New vehicle same store sales increasing 7.0%
•Used vehicle same store sales increasing 12.0%
•Service body and parts same store sales increasing 8.5%
•Finance and insurance gross profit of $1,250 per unit



These projections exclude the impact of future acquisitions, dispositions and non-core items. Actual results may be affected by items described under Forward-Looking Statements below.

Second Quarter Earnings Conference Call and Updated Presentation
The second quarter conference call may be accessed at 10:00 a.m. ET today by telephone at 877-407-8029 . An updated presentation highlighting the second quarter results has been added to www.lithiainvestorrelations.com .

To listen live on our website or for replay, visit www.lithiainvestorrelations.com and click on webcasts.

About Lithia
Lithia Motors, Inc. is one of the largest automotive retailer in the United States. Lithia sells 31 brands of new vehicles and all brands of used vehicles at 129 stores in 14 states. Lithia also arranges finance, warranty, and credit insurance contracts; and provides vehicle parts, maintenance, and repair services at all of its locations.

Sites
www.lithia.com
www.lithiainvestorrelations.com
www.lithiacareers.com

Lithia Motors on Facebook
http://www.facebook.com/LithiaMotors

Lithia Motors on Twitter
http://twitter.com/lithiamotors

Forward-Looking Statements
This press release includes "forward-looking statements" within the meaning of the "Safe-Harbor" provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements include statements regarding our goals, plans, projections and guidance regarding our financial position, results of operations, market position, pending and potential future acquisitions and business strategy, and often contain words such as "project," "outlook," "expect," "anticipate," "intend," "plan," "believe," "estimate," "may," "seek," "would," "should," "likely," "goal," "strategy," "future," "maintain," "continue," "remain," "target" or "will" and similar references to future periods. Examples of forward-looking statements in this press release include, among others, statements regarding:
•Future market conditions;
•Expected operating results, such as improved store performance; continued improvement of SG&A as a percentage of gross profit; generating third quarter earnings per share of $1.83 to $1.87 per diluted share and 2015 full year earnings of $6.63 to $6.72 per diluted share; and all projections set forth under the headings "2015 Outlook," "Continuing Operations Projections" and "Same Store Projections";
•Anticipated continued success, integration and growth of DCH;
•Anticipated ability to improve store performance; ability to find accretive acquisitions; and additions of dealership locations to the company's portfolio in the future; and
•Anticipated availability of liquidity from our unfinanced operating real estate.



By their nature, forward-looking statements involve risks and uncertainties because they relate to events that depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance, and our actual results of operations, financial condition and liquidity and development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements in this press release. The risks and uncertainties that could cause actual results to differ materially from estimated or projected results include, without limitation, future economic and financial conditions (both nationally and locally), changes in customer demand, our relationship with, and the financial and operational stability of, vehicle manufacturers and other suppliers, risks associated with our indebtedness (including available borrowing capacity, compliance with financial covenants and ability to refinance or repay indebtedness on favorable terms), government regulations, legislation and others set forth throughout Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and in Part I, Item 1A. Risk Factors of our most recent Annual Report on Form 10-K, and from time to time in our other filings with the SEC. We urge you to carefully consider this information and not place undue reliance on forward-looking statements. We undertake no duty to update our forward-looking statements, including our earnings outlook, which are made as of the date of this release.

Non-GAAP Financial Measures
This press release and the attached financial tables contain non-GAAP financial measures such as adjusted net income and diluted earnings per share from continuing operations, adjusted SG&A as a percentage of revenues and gross profit, adjusted operating margin, adjusted operating profit as a percentage of gross profit, and adjusted pre-tax margin. Non-GAAP measures do not have definitions under GAAP and may be defined differently by and not comparable to similarly titled measures used by other companies. As a result, we review any non-GAAP financial measures in connection with a review of the most directly comparable measures calculated in accordance with GAAP. We caution you not to place undue reliance on such non-GAAP measures, but also to consider them with the most directly comparable GAAP measures. We present cash flows from operations in the attached tables, adjusted to include the change in non-trade floor plan debt to improve the visibility of cash flows related to vehicle financing. As required by SEC rules, we have reconciled these measures to the most directly comparable GAAP measures in the attachments to this release. We believe the non-GAAP financial measures we present improve the transparency of our disclosures; provide a meaningful presentation of our results from core business operations, because they exclude items not related to core business operations and other non-cash items; and improve the period-to-period comparability of our results from core business operations. These presentations should not be considered an alternative to GAAP measures.



Lithia Motors, Inc.
Consolidated Statements of Operations (Unaudited)
(In thousands except per share data)

Three months ended %
June 30, Increase Increase
2015 2014 (Decrease) (Decrease)
Revenues:
New vehicle retail $ 1,149,512 $ 694,484 $ 455,028 65.5 %
Used vehicle retail 488,801 310,475 178,326 57.4
Used vehicle wholesale 66,796 44,286 22,510 50.8
Finance and insurance 72,463 43,838 28,625 65.3
Service, body and parts 182,695 114,337 68,358 59.8
Fleet and other 36,680 14,382 22,298 155.0
Total revenues 1,996,947 1,221,802 775,145 63.4
Cost of sales:
New vehicle retail 1,080,170 648,490 431,680 66.6
Used vehicle retail 426,108 266,408 159,700 59.9
Used vehicle wholesale 65,390 42,782 22,608 52.8
Service, body and parts 91,946 58,155 33,791 58.1
Fleet and other 35,684 13,667 22,017 161.1
Total cost of sales 1,699,298 1,029,502 669,796 65.1
Gross profit 297,649 192,300 105,349 54.8
Asset impairments 6,130 - 6,130 NM
SG&A expense 195,610 125,463 70,147 55.9
Depreciation and amortization 10,287 5,825 4,462 76.6
Income from operations 85,622 61,012 24,610 40.3
Floor plan interest expense (4,655 ) (3,215 ) 1,440 44.8
Other interest expense (4,972 ) (1,869 ) 3,103 166.0
Other (expense) income, net (356 ) 1,146 (1,502 ) NM
Income from continuing operations before income taxes 75,639 57,074 18,565 32.5
Income tax expense (24,416 ) (21,904 ) 2,512 11.5
Income tax rate 32.3 % 38.4 %
Income from continuing operations $ 51,223 $ 35,170 $ 16,053 45.6 %
Income from discontinued operations, net of tax - 3,139 (3,139 ) NM
Net income $ 51,223 $ 38,309 $ 12,914 33.7 %

Diluted net income per share:
Continuing operations $ 1.93 $ 1.34 $ 0.59 44.0 %
Discontinued operations - 0.11 (0.11 ) NM
Net income per share $ 1.93 $ 1.45 $ 0.48 33.1 %

Diluted shares outstanding 26,496 26,331 165 0.6 %


NM - not meaningful



Lithia Motors, Inc.
Key Performance Metrics (Unaudited)

Three months ended %
June 30, Increase Increase
2015 2014 (Decrease) (Decrease)
Gross margin
New vehicle retail 6.0 % 6.6 % (60) bps
Used vehicle retail 12.8 14.2 (140) bps
Used vehicle wholesale 2.1 3.4 (130) bps
Finance and insurance 100.0 100.0 - bps
Service, body and parts 49.7 49.1 60 bps
Fleet and other 2.7 5.0 (230) bps
Gross profit margin 14.9 15.7 (80) bps

Unit sales
New vehicle retail 35,112 20,446 14,666 71.7 %
Used vehicle retail 24,689 16,086 8,603 53.5
Total retail units sold 59,801 36,532 23,269 63.7
Used vehicle wholesale 9,439 6,047 3,392 56.1

Average selling price
New vehicle retail $ 32,738 $ 33,967 $ (1,229 ) (3.6) %
Used vehicle retail 19,798 19,301 497 2.6
Used vehicle wholesale 7,077 7,324 (247 ) (3.4 )

Average gross profit per unit
New vehicle retail $ 1,975 $ 2,250 $ (275 ) (12.2) %
Used vehicle retail 2,539 2,739 (200 ) (7.3 )
Used vehicle wholesale 149 249 (100 ) (40.2 )
Finance and insurance 1,212 1,200 12 1.0
Total vehicle (1) 3,443 3,706 (263 ) (7.1 )

Revenue mix
New vehicle retail 57.6 % 56.8 %
Used vehicle retail 24.5 25.4
Used vehicle wholesale 3.3 3.6
Finance and insurance, net 3.6 3.6
Service, body and parts 9.2 9.4
Fleet and other 1.8 1.2

Adjusted As reported
Three months ended
June 30, Three months ended
June 30,
Other metrics 2015 2014 2015 2014
SG&A as a % of revenue 9.9 % 10.3 % 9.8 % 10.3 %
SG&A as a % of gross profit 66.6 65.2 65.7 65.2
Operating profit as a % of revenue 4.5 5.0 4.3 5.0
Operating profit as a % of gross profit 30.0 31.8 28.8 31.7
Pretax margin 4.1 4.7 3.8 4.7
Net profit margin 2.5 2.9 2.6 2.9


(1) - includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail

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Lithia Motors, Inc.
Same Store Operating Highlights (Unaudited)

Three months ended %
June 30, Increase Increase
2015 2014 (Decrease) (Decrease)
Revenues
New vehicle retail $ 742,347 $ 689,006 $ 53,341 7.7 %
Used vehicle retail 357,673 307,616 50,057 16.3
Used vehicle wholesale 49,157 44,043 5,114 11.6
Finance and insurance 50,160 43,508 6,652 15.3
Service, body and parts 124,087 113,252 10,835 9.6
Fleet and other 22,042 14,381 7,661 53.3
Total revenues $ 1,345,466 $ 1,211,806 $ 133,660 11.0

Gross profit
New vehicle retail $ 45,475 $ 45,578 $ (103 ) (0.2 )%
Used vehicle retail 47,933 43,720 4,213 9.6
Used vehicle wholesale 1,369 1,560 (191 ) (12.2 )
Finance and insurance 50,160 43,508 6,652 15.3
Service, body and parts 61,333 55,593 5,740 10.3
Fleet and other 837 714 123 17.2
Total gross profit $ 207,107 $ 190,673 $ 16,434 8.6

Gross margin
New vehicle retail 6.1 % 6.6 % (50) bps
Used vehicle retail 13.4 14.2 (80) bps
Used vehicle wholesale 2.8 3.5 (70) bps
Finance and insurance 100 100.0 - bps
Service, body and parts 49.4 49.1 30 bps
Fleet and other 3.8 5.0 (120) bps
Gross profit margin 15.4 15.7 (30) bps

Unit sales
New vehicle retail 21,411 20,260 1,151 5.7 %
Used vehicle retail 17,769 15,924 1,845 11.6
Total retail units sold 39,180 36,184 2,996 8.3
Used vehicle wholesale 6,259 5,981 278 4.6

Average selling price
New vehicle retail $ 34,671 $ 34,008 $ 663 1.9 %
Used vehicle retail 20,129 19,318 811 4.2
Used vehicle wholesale 7,854 7,364 490 6.7

Average gross profit per unit
New vehicle retail $ 2,124 $ 2,250 $ (126 ) (5.6 )%
Used vehicle retail 2,698 2,746 (48 ) (1.7 )
Used vehicle wholesale 219 261 (42 ) (16.1 )
Finance and insurance 1,280 1,202 78 6.5
Total vehicle(1) 3,699 3,713 (14 ) (0.4 )


(1) - includes the sales and gross profit related to new, used retail, used wholesale and finance and insurance and unit sales for new and used retail




Lithia Motors, Inc.
Consolidated Statements of Operations (Unaudited)
(In thousands except per share data)

Six months ended %
June 30, Increase Increase
2015 2014 (Decrease) (Decrease)
Revenues:
New vehicle retail $ 2,157,328 $ 1,274,006 $ 883,322 69.3 %
Used vehicle retail 951,732 612,368 339,364 55.4
Used vehicle wholesale 129,004 86,979 42,025 48.3
Finance and insurance 137,067 83,469 53,598 64.2
Service, body and parts 356,170 218,954 137,216 62.7
Fleet and other 54,824 24,132 30,692 127.2
Total revenues 3,786,125 2,299,908 1,486,217 64.6
Cost of sales:
New vehicle retail 2,026,212 1,188,988 837,224 70.4
Used vehicle retail 829,597 527,505 302,092 57.3
Used vehicle wholesale 125,437 84,144 41,293 49.1
Service, body and parts 180,982 111,940 69,042 61.7
Fleet and other 52,873 22,970 29,903 130.2
Total cost of sales 3,215,101 1,935,547 1,279,554 66.1
Gross profit 571,024 364,361 206,663 56.7
Asset impairments 10,260 - 10,260 NM
SG&A expense 387,228 247,292 139,936 56.6
Depreciation and amortization 20,013 11,332 8,681 76.6
Income from operations 153,523 105,737 47,786 45.2
Floor plan interest expense (9,304 ) (6,199 ) 3,105 50.1
Other interest expense (9,800 ) (3,843 ) 5,957 155.0
Other income, net (724 ) 2,083 (2,807 ) NM
Income from continuing operations before income taxes 133,695 97,778 35,917 36.7
Income tax expense (41,819 ) (37,914 ) 3,905 10.3
Income tax rate 31.3 % 38.8 %
Income from continuing operations $ 91,876 $ 59,864 $ 32,012 53.5 %
Income from discontinued operations, net of tax - 3,179 (3,179 ) NM
Net income $ 91,876 $ 63,043 $ 28,833 45.7 %

Diluted net income per share:
Continuing operations $ 3.47 $ 2.27 $ 1.20 52.9 %
Discontinued operations - 0.12 (0.12 ) NM
Net income per share $ 3.47 $ 2.39 $ 1.08 45.2 %

Diluted shares outstanding 26,509 26,326 183 0.7 %


NM - not meaningful




Lithia Motors, Inc.
Key Performance Metrics (Unaudited)

Six months ended %
June 30, Increase Increase
2015 2014 (Decrease) (Decrease)
Gross margin
New vehicle retail 6.1 % 6.7 % (60) bps
Used vehicle retail 12.8 13.9 (110) bps
Used vehicle wholesale 2.8 3.3 (50) bps
Finance and insurance 100.0 100.0 - bps
Service, body and parts 49.2 48.9 30 bps
Fleet and other 3.6 4.8 (120) bps
Gross profit margin 15.1 15.8 (70) bps

Unit sales
New vehicle retail 65,735 37,720 28,015 74.3 %
Used vehicle retail 48,893 32,402 16,491 50.9
Total retail units sold 114,628 70,122 44,506 63.5
Used vehicle wholesale 18,583 11,900 6,683 56.2

Average selling price
New vehicle retail $ 32,819 $ 33,775 $ (956 ) (2.8) %
Used vehicle retail 19,466 18,899 567 3.0
Used vehicle wholesale 6,942 7,309 (367 ) (5.0 )

Average gross profit per unit
New vehicle retail $ 1,995 $ 2,254 $ (259 ) (11.5) %
Used vehicle retail 2,498 2,619 (121 ) (4.6 )
Used vehicle wholesale 192 238 (46 ) (19.3 )
Finance and insurance 1,196 1,190 6 0.5

Revenue mix
New vehicle retail 57.0 % 55.4 %
Used vehicle retail 25.1 26.6
Used vehicle wholesale 3.4 3.8
Finance and insurance, net 3.6 3.6
Service, body and parts 9.4 9.5
Fleet and other 1.5 1.1

Adjusted As reported
Six months ended
June 30, Six months ended
June 30,
Other metrics 2015 2014 2015 2014
SG&A as a % of revenue 10.4 % 10.6 % 10.2 % 10.8 %
SG&A as a % of gross profit 68.8 66.7 67.8 67.9
Operating profit as a % of revenue 4.2 4.8 4.1 4.6
Operating profit as a % of gross profit 27.6 30.1 26.9 29.0
Pretax margin 3.7 4.4 3.5 4.3
Net profit margin 2.3 2.7 2.4 2.7

...


Lithia Motors, Inc.
Same Store Operating Highlights (Unaudited)

Six months ended %
June 30, Increase Increase
2015 2014 (Decrease) (Decrease)
Revenues
New vehicle retail $ 1,379,617 $ 1,260,741 $ 118,876 9.4 %
Used vehicle retail 689,918 604,960 84,958 14.0
Used vehicle wholesale 94,161 86,573 7,588 8.8
Finance and insurance 94,133 82,548 11,585 14.0




Contact:


John North
VP Finance and Chief Accounting Officer
[phone]