Lithia Motors ((LAD)) has held its Q2 earnings call. Read on for the main highlights of the call.
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Lithia & Driveway’s recent earnings call for Q2 2025 painted a generally positive picture, underscored by strong revenue and earnings per share (EPS) growth. The company showcased impressive performance in its aftersales and financing operations, which were pivotal in driving financial success. Despite facing challenges such as declining vehicle gross profit and higher selling, general, and administrative (SG&A) costs, the overall sentiment remained optimistic, buoyed by strategic capital deployment through share buybacks and acquisitions, and ongoing efforts to navigate issues in the U.K. market.
Record Revenue and EPS Growth
Lithia & Driveway reported a record revenue of $9.6 billion for Q2 2025, marking a 4% year-over-year increase in same-store revenue. The company also achieved a remarkable 29% increase in EPS year-over-year, with diluted earnings per share reaching $9.87 and $10.24 on an adjusted basis. This represents a 25% and 30% increase year-over-year, respectively, highlighting the company’s robust financial performance.
Strong Performance in Aftersales and Financing Operations
The aftersales sector was a significant contributor to Lithia & Driveway’s success, with gross profit growing by 8.5% year-over-year and the gross profit margin expanding to 57.8%. Financing operations income more than doubled from $7 million to $20 million year-over-year, supported by a 50 basis point increase in net interest margin to 4.6%. These results underscore the company’s effective strategies in these areas.
Successful Capital Deployment and Share Buybacks
In the first half of 2025, Lithia & Driveway repurchased 3% of its outstanding shares, demonstrating its commitment to returning value to shareholders. The company aims to allocate up to 50% of its free cash flow for share buybacks, leveraging the gap between the stock price and its intrinsic value. This strategic capital deployment is a testament to the company’s confidence in its financial health and growth prospects.
Decline in Vehicle Gross Profit
Despite the overall positive performance, Lithia & Driveway experienced a decline in total vehicle gross profit, which was down $128 compared to the same period last year. Although new vehicle units saw a 2% year-over-year increase, the front-end gross profit per unit (GPU) for used vehicles remained flat at $1,900, indicating challenges in this segment.
Higher SG&A Costs
The company faced increased SG&A costs, which rose to 67.4% of gross profit from 66.4% on a same-store basis. This uptick reflects the cost pressures Lithia & Driveway is navigating, particularly as it deals with declining front-end GPUs. Despite operational improvements, managing these costs remains a priority.
Challenges in U.K. Market
The U.K. market continues to present challenges for Lithia & Driveway, with higher SG&A costs impacting profitability. Although there was a 3% year-over-year increase in profitability, the market faces ongoing industry challenges, including evolving electric vehicle (EV) mandates. The company is actively working to address these issues.
Forward-Looking Guidance
Looking ahead, Lithia & Driveway remains optimistic about its growth trajectory. The company has reported significant financial growth, with a 29% increase in EPS year-over-year and record revenue of $9.6 billion. It plans to continue leveraging its omnichannel platform to enhance customer engagement and drive margin improvements. Strategic acquisitions and increased share buybacks are also key components of its growth strategy, indicating a strong focus on sustaining its financial momentum.
In summary, Lithia & Driveway’s Q2 2025 earnings call reflects a positive outlook, driven by strong revenue and EPS growth. The company’s strategic initiatives in aftersales and financing operations, along with effective capital deployment, have positioned it well for future success. While challenges such as declining vehicle gross profit and higher SG&A costs persist, the overall sentiment remains optimistic, supported by the company’s robust growth and strategic vision.