LAD Lithia Motors Inc

Lithia Motors, Inc. (NYSE:LAD) today announced that second quarter 2006 sales increased 13% to $846.5 million as compared to $750.8 million in the same period last year. New vehicle sales increased 13%, used vehicle sales increased 15%, finance/insurance sales increased 21% and parts/service sales increased 14%. Second quarter 2006 net income from continuing operations was $11.7 million, as compared to $13.1 million in the second quarter of 2005. Diluted earnings per share from continuing operations, including the $0.03 effect of accounting for equity compensation under FAS123(R), were $0.55. Second quarter 2006 earnings per share from continuing operations, excluding the effect of accounting for equity compensation under FAS123(R), were $0.58, as compared to $0.62 in the same period last year. Sid DeBoer, Lithia's Chairman and CEO, commented, "In the second quarter we had strong increases in same store sales in all business lines. Total same store sales increased 7.6% and total same store gross profits increased 6.8%. Earnings, however, did not quite keep pace due to certain unusual expenses and because we sacrificed new car margins in order to gain sales volume and market share. It was a difficult sales environment affected by both higher fuel prices and interest rates." "Our strategy to aggressively pursue market share that began in the first quarter of the year continued throughout the second quarter. This resulted in an increase in new vehicle same store sales of 6.6% as compared to an industry that was down much more than 5%. This was on top of strong increases in new same store sales in the second quarter of last year that resulted from the introduction of employee pricing programs at our GM stores. Our used vehicle business and parts and service businesses also performed well, with same store sales up 9.2% and 7.5%, respectively," concluded Mr. DeBoer. For the six-month period ending June 30, 2006, total sales increased 13% to $1.59 billion from $1.41 billion in the same period last year. New vehicle sales increased 16%, used vehicle sales increased 11%, finance/insurance sales increased 16%, and parts/service sales increased 12%. For the first six months, Lithia's net income from continuing operations was $22.3 million, as compared to $23.6 million in the first six months of 2005. Diluted earnings per share from continuing operations, including the $0.06 effect of accounting for equity compensation under FAS123(R), were $1.05. For the first half of 2006 earnings per share from continuing operations, excluding the effect of accounting for equity compensation under FAS123(R), were $1.11, as compared to $1.13 in the same period last year. Jeffrey B. DeBoer, Senior Vice President and CFO, added, "In the second quarter, we completed four acquisitions: a Dodge store in Fresno, California, and three Chrysler Dodge and Jeep stores located in Twin Falls, Idaho, Bryan, Texas, and La Crosse Wisconsin. Year to date we have completed acquisitions with approximately $160 million in annualized revenues, and we are still on track to hit our annual acquisition targets." "While Lithia posted strong sales and gross profit performance in what was an anemic sales environment, not all the benefits accrued to the bottom line. A number of items impacted our second quarter earnings: hailstorm damage at stores in three of our markets; a higher tax rate affecting our second quarter due to a change in accounting estimates; stock option expense as a result of FAS123(R); a deferral of certain manufacturer incentives to future months due to changes in the incentive; higher interest expense corresponding to increased inventories and higher interest rates. We also now have duplication of some costs related to various long-term operational initiatives that should benefit the company's long-term performance. While many of these items will not carry through to the third quarter, we expect the higher SG&A, option and interest expenses to be factors that impact earnings throughout the rest of the year." "As a result of these items, we are lowering our guidance for the full-year 2006, which is included in the table below. In particular we have noticed that analyst projections for the third quarter are overly optimistic. Last year's third quarter was very strong with high operating margins and strong same store sales growth concurrent with a very strong incentive environment. Therefore, it will be very difficult to exceed last year's third quarter earnings. The full-year 2006 guidance is on a continuing operations basis. It assumes a steady pace of acquisitions and dispositions and includes the effect of FAS123(R), expensing for stock options and our employee stock purchase plan, that took effect starting in the first quarter of this year," concluded Jeffrey B. DeBoer. -0- *T Earnings Per Share Guidance FY 2005 FY 2006 -------------- -------------- EPS w/o FAS123(R) adoption: $2.37 $2.32 - $2.40 (non-GAAP) Effect of FAS123(R): N/A ($0.12) -------------- -------------- EPS -- Reportable 2006: N/A $2.20 - $2.28 *T The inclusion of the non-GAAP "EPS without FAS123(R) amounts" is included in the above guidance because management believes that the absence of a comparable expense in 2005 would obscure the earnings estimate on a comparable basis. As noted above, the EPS guidance is also given for reportable EPS and reconciles to the non-GAAP number. In December 2004, the Financial Accounting Standards Board ("FASB") issued Financial Accounting Standards Statement 123 (revised 2004) ("FAS123(R)") that required that the value of all equity-based compensation arrangements, including stock options and employee stock purchase plans, be accounted for using a "fair value" method. Prior to 2006, the Company had accounted for such arrangements under the "intrinsic method" permitted by APB 25 and the amounts under the fair value method were presented in the footnotes to the company's financials filed on Form 10-K. The new rules became effective for the Company commencing with the first quarter of 2006. Adoption of this accounting change does not affect the cash flow of the Company. Conference Call Information Lithia Motors will be providing more detailed information on the results for the second quarter 2006 in its conference call scheduled for 11 a.m. PT today. The call can be accessed live by calling 973-633-1010. To listen to a live webcast or hear a replay, log-on to: www.lithia.com -- go to Investor Relations -- and click on the Live Webcast icon. About Lithia Lithia Motors, Inc. is a Fortune 700 and Russell 2000 Company with 96 stores located in 38 markets in 13 states, selling 25 brands of new vehicles and over the Internet at "Lithia.com-America's Car & Truck Store." Lithia also sells used vehicles, arranges finance, warranty, and credit insurance contracts, and provides vehicle parts, maintenance, and repair services at all of its locations. Lithia retailed 103,333 new and used vehicles and had $2.9 billion in total revenue in 2005. Forward-Looking Statements This press release includes forward-looking statements within the meaning of the "Safe-Harbor" provisions of the Private Securities Litigation Reform Act of 1995, which management believes are a benefit to shareholders. These statements are necessarily subject to risk and uncertainty and actual results could differ materially due to certain risk factors, including without limitation economic conditions, acquisition risk factors and others set forth from time to time in the company's filings with the SEC. Specific risks in this press release include items which impacted earnings, anticipated revenues of recently acquired and projected new store acquisitions and projected full-year 2006 earnings per share guidance. Additional Information For additional information on Lithia Motors, contact the Investor Relations Department, 541-776-6591, or log-on to www.lithia.com -- go to Investor Relations. -0- *T LITHIA MOTORS, INC. (In Thousands except per share and unit data) Unaudited Three Months Ended --------- June 30, $ Increase % Increase 2006 2005 (Decrease) (Decrease) -------- -------- -------- -------- New Vehicle Sales $496,121 $438,375 $ 57,746 13.2% Used Vehicle Sales 230,909 200,769 30,140 15.0 Finance & Insurance 32,776 27,204 5,572 20.5 Service, Body & Parts Sales 85,736 75,417 10,319 13.7 Fleet & Other Revenues 939 9,064 (8,125) (89.6) -------- -------- -------- -------- Total Revenues 846,481 750,829 95,652 12.7 Cost of Sales 702,256 623,584 78,672 12.6 -------- -------- -------- -------- Gross Profit 144,225 127,245 16,980 13.3 SG&A Expense 107,536 93,323 14,213 15.2 Depreciation/Amortization 4,212 3,406 806 23.7 -------- -------- -------- -------- Income from Operations 32,477 30,516 1,961 6.4 Flooring Interest Expense (8,931) (6,000) 2,931 48.9 Other Interest Expense (3,641) (3,036) 605 19.9 Other Income, net 315 247 68 27.5 -------- -------- -------- -------- Income from continuing operations before income taxes 20,220 21,727 (1,507) (6.9) Income Tax Expense 8,503 8,622 (119) (1.4) Income Tax Rate 42.1% 39.7% -------- -------- Income from continuing ops. 11,717 13,105 (1,388) (10.6) Loss from discontinued operations, net of income taxes (50) (430) (380) (88.4) Net Income $ 11,667 $ 12,675 ($1,008) (8.0)% Diluted Net Income per ======== ======== ======== ======== share: Continuing Operations $ 0.58 $ 0.62 $ (0.04) (6.5)% Effects of FAS123(R) (0.03) - Diluted Net Income per share after effect of FAS123(R): $ 0.55 $ 0.62 (0.07) (11.3)% Discontinued Operations - (0.02) -------- -------- Net Income per share $ 0.55 $ 0.60 (0.05) (8.3)% ======== ======== ======== ======== Diluted Shares Outstanding 22,150 21,749 401 1.8% Increase Increase Unit Sales: 2006 2005 (Decrease) (Decrease) ----------- -------- -------- -------- -------- New Vehicle 18,276 15,601 2,675 17.1% Used -- Retail Vehicle 11,861 10,601 1,260 11.9 Used -- Wholesale 6,317 5,703 614 10.8 Total Units Sold 36,454 31,905 4,549 14.3 LITHIA MOTORS, INC. Three Months Ended June 30, $ Increase % Increase Average Selling Price: 2006 2005 (Decrease) (Decrease) ---------------------- -------- -------- -------- -------- New Vehicle $27,146 $28,099 ($953) (3.4)% Used -- Retail Vehicle 16,270 15,686 584 3.7 Used -- Wholesale 6,004 6,047 (43) (0.7) Key Financial Data: ------------------- Gross Profit Margin 17.0% 16.9% SG&A as a % of Gross Profit 74.6% 73.3% Operating Margin 3.8% 4.1% Pre-Tax Margin 2.4% 2.9% Gross Margin/Profit Data 2006 2005 ------------------------ -------- -------- New Vehicle Retail 7.3% 7.9% Used Vehicle Retail 15.8% 15.9% Used Vehicle Wholesale 2.8% 3.9% Service, Body & Parts 50.3% 49.3% New Retail Gross Profit/Unit $ 1,984 $ 2,220 Used Retail Gross Profit/Unit $ 2,575 $ 2,494 Used Wholesale Gross Profit/Unit $ 168 $ 234 Finance & Insurance/Retail Unit $ 1,088 $ 1,038 Same Store Data 2006 2005 --------------- -------- -------- New Vehicle Retail Sales 6.6% 4.8% Used Vehicle Sales (includes Wholesale) 9.2% 4.2% Total Vehicle Sales (excludes fleet) 7.4% 4.6% Finance & Insurance Sales 14.3% 2.9% Service, Body & Parts Sales 7.5% 1.4% Total Sales (Excluding Fleet) 7.6% 4.2% Total Gross Profit (Excluding Fleet) 6.8% 3.1% LITHIA MOTORS, INC. (In Thousands except per share and unit data) Unaudited Six Months Ended --------- June 30, $ Increase % Increase 2006 2005 (Decrease) (Decrease) --------- --------- --------- --------- New Vehicle Sales $ 923,871 $ 797,994 $ 125,877 15.8% Used Vehicle Sales 439,987 398,091 41,896 10.5 Finance & Insurance 60,330 51,820 8,510 16.4 Service, Body & Parts Sales 168,209 149,682 18,527 12.4 Fleet & Other Revenues 2,269 12,168 (9,899) (81.4) --------- --------- --------- --------- Total Revenues 1,594,666 1,409,755 184,911 13.1 Cost of Sales 1,319,660 1,165,278 154,382 13.2 --------- --------- --------- --------- Gross Profit 275,006 244,477 30,529 12.5 SG&A Expense 208,253 182,455 25,798 14.1 Depreciation/Amortization 8,258 6,794 1,464 21.5 --------- --------- --------- --------- Income from Operations 58,495 55,228 3,267 5.9 Flooring Interest Expense (15,546) (11,102) 4,444 40.0 Other Interest Expense (6,972) (5,841) 1,131 19.4 Other Expense, net 742 532 210 39.5 --------- --------- --------- --------- Income from continuing operations before income taxes 36,719 38,817 (2,098) (5.4) Income Tax Expense 14,373 15,236 (863) (5.7) Income Tax Rate 39.1% 39.3% --------- --------- Net Income from continuing ops. 22,346 23,581 (1,235) (5.2)% Income (Loss) from discontinued operations, net of income taxes (1,371) (916) 455 49.7 Net Income $ 20,975 $ 22,665 ($1,690) (7.5)% ========= ========= ========= ========= Diluted Net Income per share: Continuing Operations $ 1.11 $ 1.13 $ (0.02) (1.8)% Effects of FAS123(R) (0.06) - Diluted Net Income per share after effect of FAS123(R): $ 1.05 $ 1.13 (0.08) (7.1)% Discontinued Operations (0.06) (0.04) --------- --------- Net Income per share $ 0.99 $ 1.09 (0.10) (9.2)% ========= ========= ========= ========= Diluted Shares Outstanding 22,109 21,710 399 1.8% Increase Increase Unit Sales: 2006 2005 (Decrease) (Decrease) ----------- --------- --------- --------- --------- New Vehicle 33,517 28,465 5,052 17.7% Used -- Retail Vehicle 22,618 21,421 1,197 5.6 Used -- Wholesale 11,851 11,247 604 5.4 Total Units Sold 67,986 61,133 6,853 11.2 LITHIA MOTORS, INC. Six Months Ended June 30, $ Increase % Increase Average Selling Price: 2006 2005 (Decrease) (Decrease) ---------------------- -------- -------- -------- -------- New Vehicle $27,564 $28,034 ($470) (1.7)% Used -- Retail Vehicle 16,219 15,450 769 5.0 Used -- Wholesale 6,172 5,970 202 3.4 Key Financial Data: ------------------- Gross Profit Margin 17.2% 17.3% SG&A as a % of Gross Profit 75.7% 74.6% Operating Margin 3.7% 3.9% Pre-Tax Margin 2.3% 2.8% Gross Margin/Profit Data 2006 2005 ------------------------ -------- -------- New Vehicle Retail 7.6% 8.0% Used Vehicle Retail 15.6% 15.7% Used Vehicle Wholesale 3.9% 4.1% Service, Body & Parts 49.6% 49.0% New Retail Gross Profit/Unit $ 2,096 $ 2,246 Used Retail Gross Profit/Unit $ 2,532 $ 2,420 Used Wholesale Gross Profit/Unit $ 241 $ 247 Finance & Insurance/Retail Unit $ 1,075 $ 1,039 Same Store Data 2006 2005 --------------- -------- -------- New Vehicle Retail Sales 8.8% (0.2)% Used Vehicle Sales (includes Wholesale) 4.7% 1.0% Total Vehicle Sales (excludes fleet) 7.4% 0.2% Finance & Insurance Sales 9.5% 0.8% Service, Body & Parts Sales 6.3% 0.8% Total Sales (Excluding Fleet) 7.4% 0.3% Total Gross Profit (Excluding Fleet) 5.9% 2.4% LITHIA MOTORS, INC. Balance Sheet Highlights (Dollars in Thousands) June 30, 2006 December 31, 2005 ------------- ----------------- Unaudited --------- Cash & Cash Equivalents $ 23,435 $ 48,566 Trade Receivables (a) 113,912 106,443 Inventory 881,990 606,047 Assets Held for Sale - 27,411 Other Current Assets 13,057 15,781 --------- --------- Total Current Assets 1,032,394 804,248 Real Estate, net 282,032 255,372 Equipment & Leases, net 84,008 77,805 Goodwill, net 276,731 260,899 Other Assets 64,824 54,390 --------- --------- Total Assets $1,739,989 $1,452,714 ========= ========= Floorplan Notes Payable $ 763,081 $ 530,452 Liabilities held for sale - 22,388 Other Current Liabilities 107,397 95,560 --------- --------- Total Current Liabilities 870,478 648,400 Used Vehicle Flooring 18,000 - Real Estate Debt 168,508 154,046 Other Long-Term Debt 142,609 136,505 Other Liabilities 57,743 54,130 --------- --------- Total Liabilities 1,257,338 993,081 --------- --------- Shareholders' Equity 482,651 459,633 --------- --------- Total Liabilities & Shareholders' Equity $1,739,989 $1,452,714 ========= ========= -------------- (a) Includes contracts-in-transit of $52,599 and $52,453 at June 30, 2006, and December 31, 2005, respectively. Other Balance Sheet Data (Dollars in Thousands except per share data) Current Ratio 1.2x 1.2x LT Debt/Total Cap. (Excludes Used Vehicle Flooring and Real Estate) 23% 23% Working Capital $ 161,916 $ 155,848 Book Value per Basic Share $ 24.80 $ 23.97 *T