Stock Story -
Automotive retailer Lithia Motors (NYSE:LAD) missed Wall Street’s revenue expectations in Q3 CY2024, but sales rose 11.4% year on year to $9.22 billion. Its non-GAAP profit of $8.21 per share was 8.1% above analysts’ consensus estimates.
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Lithia (LAD) Q3 CY2024 Highlights:
- Revenue: $9.22 billion vs analyst estimates of $9.46 billion (2.5% miss)
- Adjusted EPS: $8.21 vs analyst estimates of $7.60 (8.1% beat)
- EBITDA: $421.4 million vs analyst estimates of $446.2 million (5.6% miss)
- Gross Margin (GAAP): 15.5%, down from 16.5% in the same quarter last year
- EBITDA Margin: 4.6%, down from 6.1% in the same quarter last year
- Free Cash Flow Margin: 1.7%, up from 0.7% in the same quarter last year
- Same-Store Sales fell 6.2% year on year (-1.1% in the same quarter last year)
- Market Capitalization: $8.14 billion
Company Overview With a strong presence in the Western U.S., Lithia Motors (NYSE:LAD) sells a wide range of vehicles, including new and used cars, trucks, SUVs, and luxury vehicles from various manufacturers.
Vehicle Retailer
Buying a vehicle is a big decision and usually the second-largest purchase behind a home for many people, so retailers that sell new and used cars try to offer selection, convenience, and customer service to shoppers. While there is online competition, especially for research and discovery, the vehicle sales market is still very fragmented and localized given the magnitude of the purchase and the logistical costs associated with moving cars over long distances. At the end of the day, a large swath of the population relies on cars to get from point A to point B, and vehicle sellers are acutely aware of this need.Sales Growth
A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years.Lithia is one of the larger companies in the consumer retail industry and benefits from a well-known brand that influences consumer purchasing decisions.
As you can see below,
This quarter, Lithia’s revenue grew 11.4% year on year to $9.22 billion, falling short of Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 11% over the next 12 months, a deceleration versus the last five years. Some tapering is natural given the magnitude of its revenue base, and we still think its growth trajectory is attractive.
Store Performance
Number of StoresOver the last two years, Lithia opened new stores at a rapid clip and averaged 15.7% annual growth, among the fastest in the consumer retail sector.When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.
Note that Lithia reports its store count intermittently, so some data points are missing in the chart below.
Same-Store SalesThe change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales. Same-store sales gives us insight into this topic because it measures organic growth for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year.
Lithia’s demand has been shrinking over the last two years as its same-store sales have averaged 3.1% annual declines. This performance is concerning as it shows Lithia artificially boosts its revenue by building new stores. We’d like to see a company’s same-store sales rise before it takes on the costly, capital-intensive endeavor of expanding its store base.
In the latest quarter, Lithia’s same-store sales fell by 6.2% annually. This decrease was a further deceleration from the 1.1% year-on-year decline it posted 12 months ago. We hope the business can get back on track.