As the company closed the year with the highest fourth quarter adjusted net income in company history, Lithia Motors watched its used-vehicle division continue to work toward the goal of turning 75 units per store monthly.
On Wednesday, Lithia reported that its stores moved an average of 46 used units per month during the fourth quarter, up from 40 vehicles they retailed in the same quarter a year earlier.
The performance pushed Lithia’s fourth-quarter used retail sales figure to 11,943 units, a level 21.7 percent higher than the closing quarter of 2011 when the company sold 9,810 used units.
Drilling deeper into that fourth-quarter used figure, Lithia posted a 21-percent gain in certified pre-owned sales. Lithia president and chief executive officer Bryan DeBoer said the rise came “primarily to normalization of late-model supply compared to the low levels experienced in the last several years.”
Later in Wednesday’s conference call with financial analysts, DeBoer also highlighted the 38-percent year-over-year sales spike for Lithia’s value autos segment. That’s the category Lithia rolled out a couple of years ago to move vehicles with more than 80,000 miles, units DeBoer said often arrive in Lithia’s pipeline through trade.
Lithia also was pleased with its value autos segment for another reason. The company calculated that gross margins on these units came in at 21 percent during the fourth quarter.
To put that level into perspective, Lithia’s fourth-quarter gross margin for its entire used-sales operation rose 60 basis points year-over-year to land at 14 percent.
For the calendar year, Lithia retailed 47,965 used vehicles, an amount 21.6 percent higher than 2011. The company also posted an uptick in gross profit on those units, gaining 1.9 percent to $2,538 per vehicle.
With the solid 2012 performance now on the books, DeBoer is looking for company stores to do even better on the used-vehicle side this year. The company projected that used-vehicle same-store sales should be increasing 9.0 percent while used-vehicle gross margin should be in the range of 14.3 percent to 14.5 percent.
“We focus our stores to effectively source and procure inventory,” DeBoer said about pushing lots to move an average of 75 used units monthly. “This is an ongoing effort that will focus our attention in 2013.”
Overall Company Performance
Along with the highest fourth quarter adjusted net income in company history, Lithia also reported that it increased fourth-quarter earnings 52 percent above the prior-year period.
The company indicated its fourth quarter adjusted income from continuing operations was $19.3 million, or $0.74 per diluted share. This compares to a 2011 fourth quarter adjusted income from continuing operations of $12.7 million, or $0.48 per diluted share.
Lithia’s unadjusted net income from continuing operations for the fourth quarter of 2012 was $19.7 million or $0.76 per diluted share, compared to $16.0 million or $0.61 per diluted share for 2011.
The company’s fourth-quarter revenue from continuing operations increased $182.0 million, or 26 percent, to $877.4 million from $695.4 million in the fourth quarter of 2011.
For the full year of 2012, revenue from continuing operations increased 26 percent to $3.3 billion from $2.6 billion in 2011.
“We grew total same-store revenue 23 percent in 2012,” DeBoer said. “This is on top of total same-store revenue increases of 22 percent in 2011 and 18 percent in 2010.
“Most automotive analysts believe a multi-year recovery in auto sales remains ahead of us, and many of the western markets we do business in are still significantly below peak registration levels experienced in 2005 and 2006,” he continued. “Our store leaders continue to challenge their teams and remain driven to improve store performance in 2013 and beyond.”
In other full-year financial numbers, Lithia’s adjusted net income from continuing operations increased 52 percent to $2.96 per diluted share compared to $1.95 per diluted share for 2011.
Unadjusted, for the full year of 2012, net income from continuing operations was $3.03 per diluted share, compared to $2.07 per diluted share for the full year of 2011.
Lithia senior vice president and chief financial officer Chris Holzshu said, “We finished 2012 with full-year adjusted SG&A expense as a percentage of gross profit of 69.4 percent. This is a record result and finishing below 70 percent is a milestone we have been pursuing for the past two years.
“For the full year, incremental throughput, or the percentage of additional same store gross profit dollars that we retain after deducting selling costs, was 51 percent,” Holzshu continued. “Our stores remain focused on maintaining incremental throughput above 50 percent, which will reduce our SG&A expense as a percentage of gross profit in 2013. We believe SG&A expense as a percentage of gross profit can be in the high 60 percent range with improved sales.”