Lithia Motors Inc (NYSE:LAD) Q4 2017 Earnings Conference Call - Final Transcript

Feb 14, 2018 • 10:00 am ET

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Lithia Motors Inc (NYSE:LAD) Q4 2017 Earnings Conference Call - Final Transcript

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Presentation
Executive
Christopher Holzshu

our operational leaders met last month to evaluate the opportunities across our 171 locations as we continue our relentless focus on continuous improvement. Our group leaders' primary role is to inspire department managers to capture dry powder and to achieve higher performance. We continuously realign our group leaders to best match individual strengths with the specific operational improvements targeted at each of our stores.

In the past two quarters we analyzed the incremental improvement in performance in our moderately seasoned stores and have observed some plateauing between the second and third year of ownership. SAAR stabilizing in the low 17-million-unit range the last three years has also made incremental improvement more gradual. The stores we acquire are strong franchise assets that historically underperform their earnings potential. The doubling of profit is occurring on schedule, but tripling and quadrupling is requiring growth in leadership, better utilization of technology and inspired teams to achieve the expected result.

As we demonstrated in our investor presentation, we see opportunity for significant dry powder in each business line. More specifically, new vehicle sales at acquisitions averaged 30% below the market share expected by our manufacturers, and 50% below are seasoned stores. In used vehicles, acquired stores averaged 38 cars per month, or over 50 units below our seasoned performers. In F&I these stores averaged $850 per unit compared to our seasoned store performance of $1,400. Our service retention at acquisition, a measure of consumer loyalty, is 20% below our seasoned store retention level.

And finally, acquired stores averaged nearly 90% in SG&A to gross profit, or more than 30% higher than our seasoned stores. All of these opportunities total up to more than $200 million in earnings dry powder that we are inspiring our stores to capture by developing entrepreneurial independent leaders across the organization.

This concludes our prepared remarks. We'd now like to open the call to questions. Operator?