Lithia Earnings: We Don't See the Firm's Growth Plans in Jeopardy

We are not changing our Lithia Motors fair value estimate despite first-quarter results that missed Refinitiv consensus. We don’t see Lithia’s 2025 EPS story of $55-$60 on $50 billion in revenue in danger of not happening. Management has long said it expected profits to come down from recent levels as new vehicle profitability has been turbocharged from the chip shortage reducing supply. Adjusted diluted EPS of $8.44 missed the $8.77 consensus and fell 29% year over year. Same-store revenue fell 5.1% with all segments declining except service, which grew 9.4%. Same-store unit volume fell 6.3% for new vehicles and 2.4% for used vehicles, while those segments’ gross profit per unit declined by 19.7% and 30.3%, respectively. New vehicle profits are slowly returning to a more normalized level from the chip shortage highs, while used profits remain difficult for retailers due to expensive inventory acquisition costs and poor consumer affordability.