LAD - Earnings call transcript Q1 2019

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Operator

Good morning and welcome to the Lithia Motors first quarter 2019 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the call over to Megan Kurz, Director of Corporate Finance. Please begin.

Megan Kurz

everyone Lithia welcome XXXX first and call. earnings you to Motors the quarter Thank Bryan and and DeBoer, Executive are today Presenting President and Miller, Officer. Vice CEO, Tina Vice Accounting President Chief President Holzshu, Chris discussions expectations the and include financial growth. markets about about events, company's futures Today's including may projections and products, statements to subject the from statements Such and and that materially to statements are could differ uncertainties risks forward-looking cause actual results made. and filings Exchange uncertainties we deem be with those the disclose our Securities risks and We Commission. material to in you urge these and We carefully to disclosures forward-looking not consider on reliance statements. place undue We which undertake of of no this duty made date to update any forward-looking the are statements, release. as

Our of measures, be over found results and measures. text the financial earnings I non-GAAP at lithiainvestorrelations.com. release CEO. President which can With reconciliation references like call discussed GAAP the today that, to for turn to comparable to the Please refer would DeBoer, to a Bryan include to

Bryan DeBoer

you earnings morning history for quarter first joining thank we per highest last adjusted Today, us. share, year. increase an in Good over and XX% reported company $X.XX at the

topline Our even up of driven were XX%. by growth earnings was increase strong which in X% greater and pretax improvement income over an

provides customer the for by several these options insurance, clear in This purchasing performance innovation, We of from resiliency top distinct measurements new to yet install diversification sales, and shop. at people company strategy chains operational growth. centers business our our service, revenue value each generated experiences are teams These body around refocus then finance As lines, growth of realize streams their and a consumer these our memorable strong vehicle and and experiences multiple powered vehicle used have business parts sales, creates that potential. assets and to earnings on excellence. creating deliver

market we offset soft same in and realizing result, meaningful vehicle quarter, a national was sales a increased somewhat total X%, X%. store in improvements to the our This sales and new XX%, our our by achieved store than sales vehicle potential. despite compared more X%. new earnings up one strides of is business our decreasing risk up We resulted towards in concentration model which made companies As same vehicle have body of aggregated up that service, This X% business differentiator an other used the sales parts these retail lines. key in sales strong just F&I and was

the make pathway clearer. over trends to $XX previous Our achieving few quarters in EPS our much

leverage. $X EPS all over billion added have year, from and $XXXX XXX% $X while We maintaining revenues over low in last annualized grew to $XX in

continually to from potential our following strategy, the of As value-based acquisition us replenished. diversification are realized new being and in improving a is stores result potential the take then the performance earnings through This $XX areas. milestone. our beyond catalyst with is realized key combined and innovation Earnings

operate when seasoned XXX% sales, XX% around share. average market share at vehicle manufacturer achieve New of market purchased, and when

Service, in body used retail vehicle the store for OEM of each typically in performance improving to units build these By leverage areas, seasoned stores continue XX% retaining model. velocity average OEM the operation below average. at purchase in are at operate customers in create to and we above and in is and our over XX per and is finance For units dealerships and parts seasoned. $XXX when month $X,XXX. average insurance, In per XX averages over used units sales, unit when seasoned purchased acquired when

grow continue drops stores when XX% the gross significant is purchase below As strategy value-based This and generate to to are they and to over SG&A a cash opportunity growth when a result, profits flows. to creates XX% seasoned.

provides we locations dealers convenience while earnings and acquisition a personnel desire. potential transportation strategically for network actively consumers we regional the and local also solutions consumers. new targets and capital that and XX,XXX our and however choice. network Our around vehicle experience then have only expand strong omnichannel We consumers whenever seek, our network a of servicing is reinvested believe to into buying Having our and brands Car our is diversified X,XXX complementing the wherever, monitor centered national physical modernize strategy. our

and Our engine liquidity over available generates annually. flows free million current is in $X.X $XXX our billion capital cash another

could at We size. excess dealerships, deployed growth of have our current to XX% below our historically exclusively purchased in revenues. assets Therefore, acquiring of if XX% funds of were additional it find

adding Another annually comes any could cash risk. with consolidation growth incremental XX% Typically added free from leverage. without be flows

that with success we to achieved recovering us right of However, within These active continue for our market remains consolidation, have XX% motivates investment an combined rate an to years. strengths entire five grow.

the one the than second total units largest of the and Combined, controlling groups online. the XX over the total keep X% marketplace things X% U.S. company vehicle market. perspective, top annually of in single market. largest no is vehicles, just addressable inventory trillion the and groups owned and used retailing market We are more U.S. XXX,XXX offering industry highly this auto our U.S. in is the dealership In now fragmented $X Despite vehicle of three over with controlled used new annually. to new

see growth modernization to our available we us expanding significant and of network to upon through experience deliver ownership this. such, the As vehicle

and diversification These and follows. our We reach. are also activate invest as market further investments network in expand to prioritized innovation physical

create internal operations. existing our we to First, solutions improve

expand to adjacencies horizontal And and share market our partnerships. business. vertical we lastly, core strategic gain through we Secondly,

purchasing digital being lithia.com Technologies, digital partnerships Shift Some experiences. examples at include direct piloted an and of internal baierl.com, such Francisco-based selling launch entirely San new home to as channel Shift a provides external a soon retailer. transformations vehicle and to

new In channel, addition existing data. this and our personnel this retail sharing network, by synergies partnership brings to

introduced to look network, us towards a vendor capacity and drive growth more call much our the drive potential. financing $X In deploy paves more Chris. more to of capital and in share of I for would market. excellence over relationships closing, meaningful acquisition and Shift with with innovation, to that, capture to With also the to $XX quickly lender to operational revenues. the them milestone our forward have to combined provide continuing We annual reach beyond billion to pathway These towards our springboard build efforts, like and U.S. and earnings turn expand EPS the will we

Chris Holzshu

Thank and force Lithia's growth by of Bryan. performance. foundation of culture mission the driving promotes that high our you is powered people

Our team improvement. members embrace our customer of continuous values focused core promote environment an and

leaders SPS. In reassess proprietary areas and values of short success. drive Lithia's immediate improves gaps long our stores addition, our The operating that the developed our will performance to and opportunity integrating for utilizes immediate quarter plan how core and align discussed metrics remain Last store use component these that results. good department that take we to key our AOP results. provides made or action acquiring SPS teams the our leaders higher term strides identifying quarter, diagnosing strategy and of for continue executing to key and trend they drive SPS scorecard with when visibility can store the or store a first where on plans towards AOPs individual In XXXX, to their annual empowered

results sales in strong Turning and performance Bryan reflecting and and X% the body F&I in quarter, increased same-store to used, mentioned, parts. service, total as

profit And vehicle shops, nameplates which performance. our our several vehicle operating F&I, used is the service, lines represent. coexist new gross is nice sales, our Our example, all with derived that independent upon body business we XX% for over from overall parts built drive model of and

the unit, to basis profit points in have our or per volume $X,XXX We growth XX XXXX. $XXX continues balancing and flexibility year. This Gross was period total an continued increase gross unit of the stores to was the resiliency of grow margin per in current last XX%, and which increase same over an from measure demonstrate our environment.

New decreased revenue X%. vehicle

Our retail compared Gross nimble the ability an per the vehicles to their and were average XX% increase to stores' $X,XXX share last was to $XX market reach with which $X,XXX volume decline and selling stores to unit unit in will in sales decreased of line price adapt quarter. and down strategies trends These remain increased growth expand XX%. our increased with continue in of even regardless and local profit X% incentives, a SAAR. X%, capture selling Due conditions. environment. used in Retail demonstrate our approach, their market this year, to

price and an $X,XXX of compared increased year, $X,XXX increase gross selling per retail increased last unit unit sales to X% was average $XX. profit Used XX%. Our

Our the used XX% certified, sales core quarter auto. in was mix value vehicle XX% and XX%

vehicles per an average XX% X% on prior improvement year. location, stores Our the of brand over of sold

We expand continue to penetration encourage to the digital marketplace store leverage leaders car grow to their reach. used their and

from came came new other we the sell key trade-ins, generating X% sourcing available dealers in safe finally last environment. in from continue used directly We and their addition, and wide sales off and a which wholesalers focused In new to a for from way looking increased dealer, street options of leverage car sourcing to from technology. came our primarily for variety and this as repurchases will In used to on professional a grow customers XX% from vehicle XX% remain the an vehicles quarter, we of independent channel used securing anticipate inventory XX% cars. vehicle car from are is retail easy auction, X%

per improvement XX%, was sold sold product and financing offerings. virtually reached our penetration arranged XXXX, ratio month. over selling In of location all milestone, vehicles below Our lifetime a our of to where per Of XX vehicle of X:X a used XX% and the service units new we our vehicle still higher to stores new first a $XXX and to unit the three particularly continue result quarter used on units vehicle rates sales contract per year. to quarter, unseasoned per we our new reached increase remains year. on XX%. $XXX prior units used $X,XXX on of compared is of in seasoned store we a per the over $X,XXX, the an $XXX in product increase prior This XX PVRs oil F&I reached record stores. group per month, an stores Opportunity sold on over F&I current a profitability the target

represents Our more maintenance We the fixed X% more operations to continued growth revenue in road of the longer, continue on and grow of body stream, over staying creating meaning and work, age service, X%. revenue average car prior anticipate X%, decreased years, as half is repair vehicles market parts by parts was wholesale XX body flat opportunity. body shops recurring pay and Customer which an over service, XX%, with year. the parts our warranties increased our increased and

vehicles points more quarter equipment addition, digital dealer. profit in facility car and advertising all XX% cost first gaining results SG&A are of across savings last the our we of the and these traction as of quarter improvement was personnel, to up indicated. OEM continue is from of brand XXX areas. year. and initiatives Cost SG&A over gross to the adjusted owned basis new Same-store improvement technologically by are acquire specified diagnostic an In advanced XX.X%, made saw

Bryan As result. $X mentioned, and adverse an have our the impact we stores have revenues in five billion over annualized newer over past SG&A years acquired our on

season, model million or in However, will industry-leading expense as achieve we to $XX results. quarter. will increased we these basis, to and get stores continue leveraging consolidated assets by back our our to a current interest On XX% the continue

and Our work rates the can seal changes is basis locations us to Lithia's to offset LIBOR floor is in will our potential ground-level facility to model proven teams headwind local XXX have In capturing to whenever in XX in is unique variable that prior while dynamics drive to our managing leverages points we providing by continue impacted to and over some customers scale. operating almost our and quickly market leverage profitability supply XXXX. of to in improvements look allows by solutions desire. Increasing make and decisions the up however continue closing, Unleashing of the true day the been remainder efficiency wherever, plan that this react made store leaders our which innovation, down and market leadership year.

taking employees QX few of capture potential achieve steps carry XXXX with AOPs, a from the their the to comments the and Our into of and trends necessary are And Tina. rest that, XX,XXX store beyond.

Tina Miller

an estimated quickly could of At credit. an had total approximately $XXX XX, us available March with $XXX in liquidity Chris. and $XXX million for additional million. Unfinanced you real Thank million provide approximately estate we cash

Our leveraged expenditures, less EBITDA, $XX capital defined million EBITDA XXXX. for was as quarter of the adjusted first

adjusted range two our end to is times, of reduction X.X times. targeted low from three a XX and debt the net Our X.X at of of EBITDA to December

the new to a reminder, inventory finance we instrument floor with those within plan a for vehicle the debt, As industry, common industry.

our operations operating and is As and integral ratio balance at how our resulting is in an our billion our floor had and financing of overstated of expense from treat exclude this times. Vehicle in of vehicle leverage financing. X.X Unadjusted sheet collateralized $X.X EBITDA to calculation, plan interest to the by we expense these March times. X.X this nature, debt used EBITDA we we not Because net XX, debt of outstanding a as assets. our of think in reflecting associated business,

new Our rate lease the state accounting this assets immaterial was guidance our impact annual operating tax duration requires on an new year. This changes XX.X%, XXXX. our adopted us stock compared last to by which certain in impact tax awards guidance lease tax We bips This statement. with over liability corresponding had laws quarter, vesting right-of-use leases with adjusted one the for record year. was up a primarily XXX income and late of of enacted driven our

our This million small billion. to own rooftop. is as As property XX, of had XX% of our a March a $XXX asset of compared of over own $X.X amount we we right-of-use

uses We acquisitions morning a innovation investors. to our our returning we in and our announced in through business reinvesting investments increase continue cash to per Earlier share. capital our and of dividend $X.XX to X% balance this

approximately call to This our concludes have prepared remaining remarks. in Operator? to million repurchase the existing our we now would questions. share availability like Additionally, open authorization. under We $XXX

Operator

Instructions]. [Operator

Nelson Our with with comes the first question. Rick from question Please of line Stephens. your proceed

Rick Nelson

Thanks. right. congratulations. and All morning Good

Bryan DeBoer

Rick. Thanks

Chris Holzshu

Rick. morning Good

Rick Nelson

on morning. guys, you the I especially pipeline environment. the that ask an for [indiscernible], to fit type dealers How that for might might the you Good the update wanted speaking? look you acquisition

Bryan DeBoer

Rick. Great,

really of haven't over anything to that with attempt able most up think was really last start a We bought to a bit capture potential. we I breather. our be seeing The is the to catch year. operational took little teams to everyone

is I think we which great. quarter, did more of that this

to under three back got range, We quarters belt to two have our ratio leverage have sit again. which three we quarters of active we to remaining three turning our bottom be. times we we the is So year. are at full the of is market want good. a ready where fairly good I and The the should and is think grow And pipeline good to

Rick Nelson

Great. Thanks for that.

lot basis a of made You SG&A, progress XXX down points. on

you you could and you might there, drivers years the progress the lagging, maybe discuss acquisition of If the opportunities some where are last where in few those maybe of made the some be? of where making might that be the opportunities most the

Chris Holzshu

coming over in we you that The nailed morning. $X years is Chris. the all good This five in I last pieces. Rick, Yes. mean, revenue it. at billion acquisition have different acquired is

stores so stay but to hard individual to And where to it's continue just at look decide opportunities groups, on. rather look focused at individual our

what And think so our do, growth. is to acquisitions, first you drive in when about we intent obviously

primarily of the and the cost, opportunity do parts focus focusing lot manage F&I a continue car leveraging great car is volumes, in then the a body And new generates and marketing to While which big facilities. volume, in and work used growth. on service, after, key to we down personnel, stores

at group group Downtown has in, the look question, I actually far the XXs. is if Baierl where XXs. as the lower are LA, definitely come in they your lower that answering So as in directly acquisition

towards some as right towards in And final to have and maximize and York for that then get opportunities We some what look continuing we them store are now momentum to through leverage acquisition upstate we on. starting the next New to probably the finally push from get potential. DCH the to got working

Bryan DeBoer

us eight turned five-year you Rick, entire the for seven the within call, years since and in the that can how recapture our first historical returns one investment thing and for on actually we acquisitions period full we shows back are profit slide on another where those XXXX. on a see joining time our

Rick Nelson

for Thanks Great. that. All right.

could maybe I Shift using you and opportunities? update what or plan other Finally, in for some of if your their an technology for procurement perhaps on your is dealerships, ask own

Bryan DeBoer

Rick, Bryan again.

so few how their stores. The how today. to the We over be to the has thinks those fun necessarily to how of through months. is are consumer for consumer neat being and not collaborate company a is It's pleased they the technology. been to It's how growth. This and to monetize first ours digital in are very around business with utilized technology behaviors a their It's progress able only behaviors and channel independent currently progressed tune people. learn in six

now could consumers' Someday to purchase distribution directly from it channel it's for them. home really but be become second that, able to buy cars a to and

So I think being, the really time for model. is it their

and anything. execution, We in are help operationally guide to than there them more

Rick Nelson

luck. and lot good a Thanks Okay.

Bryan DeBoer

Thanks Rick.

Chris Holzshu

Thanks Rick

Operator

you. Thank

line the from comes question Steve proceed Dyer next with Craig-Hallum. your of Our with question. Please

Steve Dyer

take am little has you on strong I guys. It if a driving it the there just Good quarter. Are wondering Are sustainable strength and really on going increased the a morning there? more what's Thanks. What was going could now. just how seeing the product offerings? rates? forward? Is for up? F&I granular been bit you in ASPs are it there those different is bit give

Chris Holzshu

Chris. morning, have I good to got revenue. It's billion what acquired really about to response Rick a Steve, we mentioned $X Yes. I mean, SG&A. same just in

that on biggest and that and seasoned sure the the the are a the of make F&I that comes that really we to opportunities products coming lot $X,XXX that new the PVRs in process with and is of anywhere the driving you instill core stores see It's per people, our in areas. One stay acquisitions down opportunity to are that to numbers F&I unit. we have between $X,XXX three we focused that

there us that have to continue So of on we performers season and that those years work as still quite is to recent part the kind the we stores. upside done of in a feel to we there to we continue continue like be are of for lower groups bit going acquisition

Steve Dyer

am a similar about answer? and then was ask I guessing I question service and your potentially to parts similar Great. And going

Chris Holzshu

that's correct. Yes. Steve,

Steve Dyer

for Lithia guess, then as you look maybe any me, the to terms year, brand looking restarting of geographies in what of markets lastly thought you smaller terms versus for are or Thanks. your strategy go large as I process at of mid-tier legacy in the change bit exclusivity acquisition markets? engine the change a Any little Okay. in And this of sort forward?

Bryan DeBoer

hurdle Bryan Definitely our in strategy. is No this changes changes our no ROE in Steve, again. current rates.

which and we some a national to would is I in bones about like the the our we if bit Midwest put think the where are network, areas more on thin, meat we think the Southeast. little

of We areas a preamble into make good a in able really always or areas that is able something based be to are future, would those those to where prove we underperforming those and certainty to about key within I are X,XXX that rate hurdle be digital value time. again that country stores in are in that and with XX% finding hopefully five but have that starting four five-year of money push time period our to it's time to the which been back we able getting the say a investing get to an

Steve Dyer

Got it. Thank very much. you

Bryan DeBoer

Thanks Steve.

Operator

you. Thank

question with Jordan question. line of comes Please the with from Jefferies. Bret proceed Our your next

Bret Jordan

Hi. Good morning guys.

Bryan DeBoer

Bret. Hi

Bret Jordan

performance Could regional a saw standpoint? volumes market the sort the you you sales relative in your of in in regions, side? how those And Any dispersion on then maybe new you about talk think maybe from quarter? the to share

Chris Holzshu

Bret. This morning, Chris. Good Yes. is

we and was transitions market some on actually regions continuing some our headwind really that As only growth. But board. digit more a overall, personnel with push the saw market single double a people overall which we probably Hawaii to mean, are there. saw improvements driven in we gross to of are on were I profit concerned, bit across as far the the was

big little we growth. in the a on and pressure Jersey, to parts and gross So focus double seeing board. and across us to had I than generated digit our If growth bit service, for bit F&I, saw a continue anticipate even new story Dakota and Alaska of used see more highlights we our nice profit has that North cars, the saw, New pick continued in Nevada, all we really a like unit, on when markets body car Pennsylvania

regions. probably So us those the positive for on were the

Bret Jordan

maybe their any, with deductions, local I realizing and a would tax Did quarter get mean, a about see loss we state local weren't and going some in as they I some were and deduction state these the you people ago, guess, the year were talking cadence demand. tax of any And risk far markets? doing Okay. shift as of taxes impact see of through to we

Chris Holzshu

overall Chris address Yes. impacts impact as say, more our for there. great the some a leaders market stores. in And I to far their we making decisions as how refunds obviously, what's on an each of mean, again. may certain of but would had happening Bret, I have consumers big impact see are local didn't volume,

Bret Jordan

with timeframe final Do billion $X Great. have around question. you about Okay. a that Shift then one revenues. target I talked And guess $X billion? a for you

Bryan DeBoer

we answer We able question. know the hopefully there. to to to into will the engine on to they get be that gaps let a there clear are get to them path be are goes that of and I that there some be able

Bret Jordan

you. right. All Great. Thank

Bryan DeBoer

Thanks Bret.

Chris Holzshu

Bret. Thanks

Operator

Thank you.

line of Bank comes Our with question question. the your from America. of proceed Please John Murphy next with

John Murphy

guys. network? I growth morning Shift we the how up same-store am are about used your Shift going the there. the over sales sales the wanted of attributable currently in curious could XX% stores I system just think some through to and how How incremental that should and just to time? be to Good many strength connected on of much follow

Bryan DeBoer

is at John, three that There current this with is Bryan. the stores Shift time. interaction only have any

XX% will that the procure dominance big color of you share sales up on The and that car future. I cars our impact. Chris, are number add you think inventory. of the greatest got think the primarily to can other in the in as in a the have off increase That market used not is thing. it's is about inventory used ones And same-store some inventory business, in to that? driven those end procure own the one So ability

Chris Holzshu

Yes.

big marketplace. on street as focus of follow-up our a a one-sided remarks, to our is the really Shift area kind around which just purchases prepared for Just

woken of a maybe of cycle. up now, purchases procurement real our will I lot we we street X% from the have the at are retail direct anticipate to that of their leaders mentioned, as street that kind only to to opportunity coming and off vehicles continue look purchases as think a improve we we right grow. And

John Murphy

are those out I cars I with how That's for mean Is that there a right. it's is signs? trade That's part or car. going the street you house Okay. a and of not purchases? sign regular working? cash. natural just a a there mean system transaction, how And actually is going out and buying

Bryan DeBoer

that That's again. John. Bryan is and This trade. That is correct, buying directly is

Our trade-ins are of our almost inventory. XX%

at being lot the well. So of the chain of top food helps sure that on a

many of when pilot stores to about, say, Baierl.com, our on able come you if is up touch right go can as And at we think to lot people's market look are future not them consumers from wanting a rooms and It's your walking I Lithia.com we to go directly are to in. their about starting a going are heavy It's well. home. done out our what today being I pick a I lifting. us as car. maybe the going in sell It's at from then Craigslist. buying repurchases with a think future think And think you car presence of and and calling see forward, which start we car still but will to of talking into the to your for living we the digital

John Murphy

Got it.

Okay.

over That's more encouraging. going So sophisticated time. much become to that's

I question Are push season from to are you? kind just to of in little It is Or bit heavy. like that of it What a understand spring mean inventory new of kind little on expect far how industry do a a inventory being Second automakers alluded work back get on the selling little able the you looks to few pushing you higher. side. the you Just you the out? might next bit cleared hearing bit? help months? kind them as you to on as is

Bryan DeBoer

quarter big think opportunity think area of have a I or our of in and that's one inventory, increases John, drag. without I part really killer we costs that's the had interest would and

when manufacturer about I partnerships, think lot. think think we our we about a seasonality

seasonally into better So are of going it time we year. the

So that. you see drops should automatically in

to, drop We but an incentive can drop are able to process people $X.X season what I still say, I in be able past be bit be to XX% discern billion little determine may to we say utilizing technology incentivizing for through rate our the But stores and implementing about two from range should would to to interest a that with our would from think the they that we able active somewhere in in be stocking. sales that things still away rolling. really better or inventory what inventories, our having new of be and current car a we that

indication incentives too thin That's being see did they like XX% The so. to and over incentives. I out. incentives of going about basis. that are shrink other is there mean, much down you thing year-over-year driven primarily or see it's when manufacturers, you are rise that start are They we seeing is, an inventories with off the to our inventory usually

John Murphy

on just front end then the gross. And Okay.

had the in growth quarter. some You

see there part concerns there PVR of be is lot rates PVR we -- been have opportunities that should you like front risk think that hypothetical if about? of might there may the intentional mean growth all rates heading goes. of flat foresee What back target do like front end kind of you here, with gross? kind Could seems I an had where a the will thinking your to and a are lot reversal of to down? number. do but I actual just there? backing it you come F&I in think end seem limit is It the And up we be now rates this more reversal maybe F&I a there is under doesn't with gross in pressure,

Chris Holzshu

brand John, think managers to definitely put on and general you this the out that day on Yes. the figure is Chris. I that each we opportunity. they represent. it's every know And our we have balance based

every we declining experienced. of function in to across-the-board, new line volumes that's of that GPU car stores and on up a our maybe dollars the on reaction a lot the So were business side

it based I anticipate the generate stores appropriately the the is ultimate we react the think our and exactly to goal will profit the on market bottomline, that off dollars gross whatever that in bottomlime. front knowing So is not bring generally of drop putting us, to

John Murphy

for Is higher? that this potentially to sort an of continue we should rough to too thumb Over can grind something that think Is of that's there rule going pie-in-the-sky about $X,XXX? average? time,

Chris Holzshu

is Chris. lot car focused smaller markets efficiency are kind are but focusing the they A wouldn't XXX%, have or of that John, that that great XXX% stores in velocity. are they kind side. hit captured $X,XXX on, there doing the on sales of are of have market I where number they on used what this stores is say

I think then they sweeten GPU more pot out like the dollars. will pushing start to

a it's it's call final an So store-by-store hard but to the is to opportunity predict there, like. definitely look and going what number

John Murphy

something to at motivation there are think it, give curious structure and with. way what has why curious you you Do an the of was? floor look you Tina, And then Or at totally debt the agree it the plan you I totally confused am numbers, us the changed? I shouldn't are included on am just investors you. in it's just of about why it cap explanation I you necessary right agree to it. some looking Got that gave this? that explanation I lastly, felt the call? just the are which way with

Bryan DeBoer

investors not couple John. been and question, much outside it's we road, industry there they of with how and on and a ratio that that really the It's the have invested but people there is surprising, very down times implications is Great Megan understand the surprising it about six when they overhang the flooring leverage I, for are last plus out see have months nervous really that of don't times. the bring two that

retail specialty at or thought a to exclusive discount of are part very out drag we people for to those new the was to such important the or because why new on it's So the vehicle think to we providers. used that our sector it to that service call point trades or industry,

John Murphy

appreciate very it. you much. Thank I Okay.

Operator

Thank you.

Please of next Morgan Armintas comes with line proceed the question Sinkevicius with your Our question. from Stanley.

Armintas Sinkevicius

you taking morning. Thank for Good question. the

few here. ones a small Just

was a down SAAR have comment up retail sure I Your it and retail although with number same-store SAAR, down match the that it's SAAR. data in of your used is better X% just, than was to quite seem with am roughly retail doesn't we But X%. line ours.

a is new Is on sales on? same-store So for there the going it else for Just curious sign? push it something gross? the

Chris Holzshu

Yes. is Armintas, Chris. this

your clarify to Just question.

used I led down car think you sales X%. with

cars. the of with new meant worries I think questions. rest you your No

just So to I issue. clarify really that. down And a it think comes just to mix general

and So of on the we just sit, import the based brands on saw biggest brand where our some well. domestic pressure we as

through push the to like. So based line are, a to GPU don't in numbers focuses up and areas working that. we And that on the did those of continue we working what And exactly we think what more quarter. on one the in pressure which national national just dollars, looks is saw little we I through bit are

Armintas Sinkevicius

is understand the Okay. the the more the used the it it it bit Is Just there, strength look to for Shift? And trying strength a new push Is seasoned? side getting stores a little better. on then focus? acquired then,

Bryan DeBoer

Shift. three procurement about is quarter. stores. impact level the is it's XX I Bryan think again. XX was Armintas, And very cars There the to this only little from Remember, in and

pick or and at choose. whenever and wherever, the really however different options and from it's So finance at dealerships experience, create small type right then their them for cars or whether able finding in and different numbers home a right providing to a it's Business our they to up impact. our XXX% areas, the them them be of stores, pricing consumers coming to

Armintas Sinkevicius

the their Okay. And their being independent putting putting site? then for channel But growth with it's is Baierl.com know start inventory the and it's Shift. regards the what only thoughts Or I business mentioned to your you stores. and It's in their push for would few the inventory on where of on of any online? you model. sort time a you

Bryan DeBoer

I This inventory. it's I way. is more the about don't this inventory, more on about Bryan explain would almost again. eyes it getting believe is getting it I believe

than Lithia or relevant to inventory idea visibility is getting So giving on more less the stores vehicles. Shift inventory stores Shift on Lithia of more

job able be endgame space, on inventory. done we procure able So that It's I at the is about it going think a hate to much buy knowing nice cars. right not the to being think and the right to to that I or focus won is is that but in I battles focusing procurement very the at I and what that's lost. where that Lithia Shift's hope to simplify be the clarifies is being there it

Armintas Sinkevicius

very That's Much it. Got helpful. appreciated.

Operator

you. Thank

Please comes your question next Gupta the proceed JPMorgan. from line of Rajat with Our with question.

Rajat Gupta

coming elaborate Thanks follow-up morning. on little the sales wanted services. I strength Good help there, again for the more a of Could margins, really vehicles from to and parse little it is a taking bit of on up of my which across parts a on just little kind bit you nicely? both different bit. of were and And on sources Hi. question. business, parts or just brand our different it could that

Chris Holzshu

This morning. Good Chris. Yes. is

two I think there. kind question of a that's answer

in is The to off the smaller about back we were the to starting UIO XXXX year first are that over SAARs in if range really look to and some XX last $XX the $XX of dropping you years, XXXX. part million million see back

U.S., in overall which is our all-time is the So million to now is I units think which is continuing XXX UIO an evident right park, in high. car grow, also at the which

as just help traffic. to continuing first natural that's So

again stores dealers' retention of $X the is below to get of at push stores are lot are The do well other our that continuing expected see we to stores with we average billion in, big seasoned we plus and to acquisitions what which piece where typically to retention rate where XX%. in service goes is those revenue a back brought that out

think service, parts out helping happening seasoned acquisitions the lot lot. market, way to is a general focusing is but our stores and related then do coming a body and So the our on there online I

Bryan DeBoer

how One years, of to been other commodity at hold at why close for in future business think we that imagine seven about do it's a in thing have starting top what years we sales continual to to And we add of now is part independent. seven shopping that a move function it's I convenience of we experience last really take and I to letting of value very the reason would the service. key and really eight type to look remember to really that's are that it's and have of increases food in those to same-store have had and become that consumers. good at one-stop weren't and over the the businesses, parts to we But that's just consumers our XX started that chain the experience and that we a now the we are for

Rajat Gupta

about of just that a size as ones? bit? might your see smaller year. as just more Got activity out sense. DCH? this it big makes That it. a I year. could it comments to earlier M&A we mean something bit wanted the combination a we follow of digging in It Could segregate talk you I Could this is uptick sounded acquisition be little deals later expect? on an like little it Or

Bryan DeBoer

typically you three a to Bryan I one store mind Sure. color. little groups more diet, This is We giving again. our okay. call don't staple

see trickling So those we periodically like have in typically done. will you

when Southeast, need similar areas. be time to that our larger and want midsize logistically to those back management with our able our team. values And forth would into the we I we think customer that team a think about areas base I we and to mentioned, getting join Midwest spend to group

a much have we move we in And of oars the into probably those and those Outside water like markets unless think slow-move I So that more will cultural stores. states. our DCH, into adjacent track troubles, think fairly always it's stores X,XXX a a equity find fit, environment as that, we having less the of amount lot and obviously some makes leaving the a space and private VC to of breaking clear be money is I competitive. that seems much buying fair loose the which and

into reality. be prices So of realms back seem to the coming

Rajat Gupta

Got makes sense. it. That

improvement the quarter. Just in to lastly first on here profit. Obviously, SG&A good gross

more the Excluding rest the for kinds the that else anomaly little year? question similar a of the decline equal? kind expect trajectory XQ should we is an any we is bit should bit of acquisitions you little anticipating and is -- of could rest of see might all be the the do, basically, year, of Or we a of

Chris Holzshu

anticipate gross going mean, I anticipate item. on Chris. is SG&A This backwards that we continued in a Yes. focus to we line don't and

Rajat Gupta

Got it.

That's Okay. Thanks. all had. I

Bryan DeBoer

you. Thank

Operator

you. Thank

from Bottiglieri line comes Chris with Our question. of Research. the Wolfe with Please your next proceed question

Chris Bottiglieri

question. Hi. Thanks the for taking

Bryan DeBoer

Chris. Hi

Chris Bottiglieri

that first warranty this to growth wanted quarter. I on exploded talk really

roll-off? peers campaigns stated if the rest you of is for continue your of the outcome. you would to recall like there One that Or similar any Curious large to expect a expect this year? lumpy

Chris Holzshu

have for the helped anticipate to are airbags, the year. drive the which warranty Yes. with focused brake Hi And related on Subaru, valve saw we impacts issues obviously we Ford of and brands significant And Chris. big a that Chrysler. big continuing but the positive Chris, that this some really activity, is recall lights primary and number OEMs some rest four recalls Volkswagen, of the

up. And go outside continue to that, we good warranty new on again vehicles to numbers and will push trends that there. selling of some So continue UIO as retail more

Chris Bottiglieri

of to am via to understand That's really growth and way contributing parts kind impacts -- a parts service understand service parts impact helpful. is growth and dimensionalize like the trying the inflation trying CPI wage traffic that's then And between from and probably I there growth to right on to what and ticket. now? the growth

Chris Holzshu

if this we take that Chris, later that that's lot data all compile for right, have an think Yes. into we But with question. answer I will could of the afternoon. one offline probably a you, we

Chris Bottiglieri

That's great.

it one call final the now. through parts think explosive Okay. what and service, I And sounds am it growth this sustainable from am And in just and trying rate. one. in margin same-store hearing to then gross sales I

So just trying think SG&A I it's SG&A-to-gross from impact doing what through to or am that, metric. trying to margins see incremental the to

the service's SG&A So to quarter? contextualize growth? have that is Or a incremental way this specifically there parts more and of then kind you parts SG&A and improved rates service how the maybe with much

Chris Holzshu

again. Chris Chris, Yes.

continue to for XX% throughput. to lines business is push all our core that incremental Our on of

incremental generating for of rest that be that parts operating in our least profit. gross service, at would we through we of flow to to are to our And focus year. continue the the So that expect the see will XX% and

I down really and dealer, larger it advantages have as comes technicians. the opportunities that think one of to of one a the you

and technicians We space techs XX,XXX XX,XXX in. XXXX have there understand out from coming this in new is of retiring what I

tech better sure we leverage So attract coming is do better being area again UIO and big beyond. that to with of we work more the dealer trends that make positive us that's where benefits, in larger continued on of think can training, see better to a kind anticipate technicians our focus for we a for are the and rest going and I increasing able recruiting, we focal and and pay, retain the year

Chris Bottiglieri

That's great. Very you. helpful. Thank

Chris Holzshu

Thanks Chris.

Operator

you. Thank

of Our the with Michael line Please Securities. your question. with Global next comes proceed question Ward Seaport from

Michael Ward

Thank you. Good morning.

a Just point clarification. of

from the down being your Are I manufacturers? and X% in mentioned commented about think year-over-year. the remarks Chris, incentives you you Bryan, incentives those vehicle

Bryan DeBoer

that was in $X,XXX triangulated so $X,XXX of kind mind. okay, from a vehicle at Yes. This number, this is are The year last incentives manufacturers they under just approximately. year and keep

Michael Ward

Right.

April? continue So that seen have you in

Bryan DeBoer

It's trend have. a similar We line.

Michael Ward

And parts and Okay. on follow-up service. a just

your the big How experience the with levels? five has of into the always things I with ownership think the after industry, with that year you three, had drop-off this and have years four year retention levels. one One and experience the two been retention

Bryan DeBoer

This a is again. is great question, Bryan That Michael.

old vehicles I possibly think about even automotive their do warranty that's not when the second and of their are. new We the what into about who the ownership think consumer were of we period think we car retailers, lifecycle with gen. Today, we entire for they businesses.

that's people prefer the service experiences stay five price. the warranty could expiring, to consumers, be which our of on of our or actually, have average cars. them typically was years, which to introduce XX% us allowed times a to into year a and when at comments happens higher us some manufacturers my basically to with buy talking lower-priced through least sensitive only parts to be That's increase we a retention is We get comes when idea that to we in all will that a begins a noted our parts OEM rate. parts two we which of I stores, really teach three our retention aftermarket aftermarket, with. half in dealerships, consumers, But we UIO OEM beyond. are means year XX increased that one retain rate customers over fairly we we consumers sell at with because do when not a the if is, on close and consumer what that is to to depending substantial start So we although comes

to us other on being food that of top and tires offerings adding or business. our now other expand we sell able to batteries adjacencies The into and windshield are chain and existing and product and that wipers of things are the brakes shocks all

life and two be. mind same it of year in as this Keep the thing So not used three the with to to our service quite as consumers idea well. a one is

business production Our and open we facility the into have less departments if at still able that existing are additional which that double stalls turn with to potential our that spending hours longer XX%, we without and any utilization service we still than remains our in filled capital. our means base

Michael Ward

Okay.

types those incentive and growth that service, of parts normal? So talked the is type the to X% growth there reason maybe it of we to Maybe X$ the levels expect sounds the X%, see past are to more no X% from like not we where in shouldn't levels.

Bryan DeBoer

think the in understanding be better will at better those and it I able be are will retain the think consumer I we needs, that longer our the customers. stores accurate probably Michael, that's to

Michael Ward

to to last that it those Is are start that point one explain that's presented? and a they grows you just out why Is on website is on that results? would question see your suggests equity X,XXX enable, As any it grow expand the says that there right line. year. like me units XXX could anything be to starts in to their that the wouldn't the inventory, we roughly it see how come or or a numbers income If have income equity X,XXX line anything, what that Shift. And they selling inventory bucket, towards on that we units

Bryan DeBoer

This are you Bryan is sit an Michael. position, equity into position. don't an We equity if we at currently again, get accurate. Yes,

Michael Ward

do You okay. not,

Bryan DeBoer

sit not an do We yet. equity position at

think I you I about with have that. their circle think they their double Shift give entire you and run and at as may what inventory their Toby inventory the you we George and not about site. rate particulars specific can stuff believe if back on are. inventory and show it's well, that their But

Michael Ward

no So a partnership? is equity just the stake. have relationship You

Bryan DeBoer

Correct.

elaborate to that, on Tina? want You

Tina Miller

Tina. This is

component right. some is the half So just financial It's back statements, see you the of to don't second in called made ownership clarify, we do year. in which out. not it last material Shift, our investment a have We why of

Michael Ward

does at far become And reach to Is what Okay. or that has like that level there as barrier significant? as a certain impact X% something that?

Tina Miller

guidance, less -- right, it's you than allows Yes. Typically, to ownership under XX%

Michael Ward

fine. Okay. That's

So it's more it. of the ownership

Tina Miller

Yes.

Michael Ward

Perfect. Thank you very much.

Bryan DeBoer

questions. your for Thanks

Operator

[Operator Instructions].

the comes Derek with your question next Edge line of Glynn Research. question. Consumer from proceed with Our Please

Derek Glynn

the question. taking for thanks and morning Good

think Given loan problem approaching probably affordability do vehicles? prices continued we new they are you growth are, in where rates an and in new

Bryan DeBoer

be and consumers able new cars Derek, are any pretty believe in retailers that Bryan. No, manufacturers increases environment. to to of those adaptable I this type to out figure for and afford is solutions

Derek Glynn

a your seen back? get on pull still secondly, Is to Okay. Have Got signs any credit the environment. thoughts credit it. And widely want then auto just available? just you of

Bryan DeBoer

the solid quarters Bryan it's full which important look is forward which stable it's an is a foresee in is the would to in is Valuations again. next this terms which part radar, great. blips and swing, on is are we any that LEDs a And No, don't widely model. years. few Leasing say available. definitely good. driver. Derek, of I We of

Derek Glynn

it. much. you Got very Thank

Bryan DeBoer

Thanks Derek.

Operator

and to floor Mr. our Ladies any I DeBoer question-and-answer you. comments. back the Thank for final gentlemen, will this turn session. concludes

Bryan DeBoer

look to today updating bye. Thank results and second quarter you Bye, everyone for joining you July. we the forward us on in

Operator

Thank you. This concludes today's teleconference.

lines your Thank time. participation. you at disconnect this for may You your

Lithia Motors (LAD) 24 Apr 192019 Q1 Earnings call transcript