LAD Lithia Motors Inc

Lithia Motors, Inc. (NYSE:LAD) today announced that preliminary fourth quarter 2007 loss from continuing operations was $3.6 million as compared to earnings of $6.7 million in the fourth quarter of 2006. Loss per share from continuing operations was $0.18 as compared to diluted earnings of $0.33 in the fourth quarter of 2006. After discontinued operations, preliminary loss per share was $0.26. For the full year of 2007, preliminary diluted earnings per share from continuing operations are $1.24, down approximately 35% from 2006. After discontinued operations, preliminary diluted earnings per share for the full year are $1.04. Included in the loss for the quarter from continuing operations is an approximate six cents loss per share resulting from a non-cash charge of $1.77 million attributable to franchise impairments at three of our stores which handle Ford, Chevrolet and Hyundai brands. The Company cautioned that these reported results are preliminary pending completion of the annual audit by its independent auditing firm. Sid DeBoer, Lithia�s Chairman and CEO stated that, �The Company is completing a review of potential reporting irregularities associated with retail sales at certain store locations and until the review and analysis is finalized, the Company�s financial statements and the audit can not be completed. While we do not expect the completion of the review to result in a material additional charge to income, no assurances can be given. Our final audited results will be included in our Form 10-K filing.� Mr. DeBoer further commented, �Recessionary market conditions accelerated in the fourth quarter for Lithia. Since we sell a large-ticket consumer discretionary product that must be financed, we felt the impact. Most of our regional markets were more impacted than the rest of the nation � particularly in Nevada, California, Oregon and Colorado. Customer visit counts at most of our stores were measurably lower than anticipated. �Our change to a new way of serving our customers is a cultural change that is also having an impact on our short-term results. These changes are critical to our long-term success as a national provider of automobiles & related services. They markedly improve our customers� experiences and will reduce our operating costs as we take out complexity in all the ways we deal with our customers. �We are pleased about the results we are experiencing from our three L2 Auto stores. Financial results from the fourth quarter 2007 were in-line with expectations. January and February traffic and sales are better than expected at our two recently opened stores in Texas, and we anticipate that L2 Auto will meet or exceed its profitability targets in 2008. �We are focused on continued top line growth through acquisitions and the growth of L2 Auto. We expect improvements in operations from our many cost reduction activities � both those we are making as a result of the recession and those of a more structural nature. As we centralize more office operations, enhance customer processes and L2 Auto strategies gain traction, we expect to see tangible improvements. �As we have previously stated and continue to say, we have steadfast confidence in our future. We are building a business model that we expect to generate annual earnings per share above $3.00 in 2011 assuming a healthy macro-economic environment,� concluded Mr. Sid DeBoer. Jeff DeBoer, Senior Vice President and CFO, added, �We have provided first quarter and full year EPS guidance for 2008 as shown below. Due to the economic conditions expected to continue into the first half of the year, we expect the bulk of the earnings to occur in the second half of the year. Our improved business model should also reflect positive margin improvements as the year progresses. �Our guidance is based on income from continuing operations, and fifteen to twenty cents of development expenses associated with L2 Auto. Any acquisitions or dispositions will affect this guidance, as they are not included. Our guidance is integral to and predicated upon a number of 2008 assumptions, most of which are outside of our control. Some of the assumptions are listed below,� concluded Mr. Jeff DeBoer. 2008 Key Earnings Guidance Assumptions: Sales � � $3.2 billion - $3.3 billion Same Store Sales Decline 3.0% - 5.0% Gross Margin 16.5% - 16.6% SG&A as % of sales 13.1% - 13.4% SG&A as % of Gross 78.9% - 81.2% Operating Margin 2.4% - 2.7% Flooring Interest Expense 0.7% - 0.8% Other Interest Expense 0.6% - 0.7% Tax Rate 39.5% - 40.5% Net Margin � � � 0.7% - 0.9% � Earnings per Share from Continuing Operations: Guidance Guidance � Q1 2008 � FY 2008 � $(0.05) - $(0.10) $1.00 - $1.30 � Conference Call Information Lithia Motors will be providing more detailed information on the results for the fourth quarter 2007 in its earnings release and conference call scheduled for today, February 20, 2008 at 2:00 p.m. PT and 5:00 p.m. ET. The call can be accessed live by calling 973-582-2717; Conference ID #: 30769691. To listen LIVE on our website or for REPLAY: Log-on to www.Lithia.com � Go to Investor Relations � and click on the Conference Call Icon. About Lithia Lithia Motors, Inc. is a Fortune 700 and Russell 2000 Company. Lithia sells 28 brands of new and all brands of used vehicles at 110 stores which are located in 46 markets within 15 states. Internet sales are centralized at www.Lithia.com, or through the recently launched www.L2Auto.com. 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 105,323 new and used vehicles and had $3.23 billion in total revenue in 2007. Lithia is publicly traded (NYSE:LAD) and is available on the web at www.Lithia.com. 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. Forward-looking statements are based on certain assumptions and analyses made by the company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. We make forward-looking statements in this press release about the company�s projected earnings per share for 2007 and 2008 through 2011; timing of future earnings; value of certain assets; success of cost-saving initiatives and the company�s new business model; timing of anticipated benefits from capital commitments, business strategies; future capital expenditures; market growth and the retail sales environment; and other statements that are not statements of historical fact. Specific risks in this press release include (i) the completion of the 2007 audit and the ongoing internal investigation, (ii) the accuracy of the company�s predictions related to the 2008 retail sales environment and the Company�s ability to successfully adjust to those conditions and achieve the earnings per share projected, and (iii) the amount and timing of L2 Auto losses. Additional Information For additional information on Lithia Motors, contact the Investor Relations Department: 541-618-5770 or log-on to: www.lithia.com � go to Investor Relations Lithia Motors, Inc. (In Thousands except per share and unit data) � Preliminary Three Months Ended � � % December 31, Increase Increase 2007 � 2006 (Decrease) (Decrease) New vehicle sales $404,845 $412,220 $(7,375) (1.8) % Used vehicle sales 180,584 182,254 (1,670) (0.9) Finance and insurance 24,063 25,957 (1,894) (7.3) Service, body and parts sales 95,291 86,986 8,305 9.5 Fleet and other revenues 1,041 1,563 (522) (33.4) Total revenues 705,824 708,980 (3,156) (0.4) Cost of sales 589,011 587,031 1,980 0.3 Gross Profit 116,813 121,949 (5,136) (4.2) Selling, general and administrative expense 105,050 95,148 9,902 10.4 Depreciation and amortization 5,733 4,446 1,287 28.9 Operating income 6,030 22,355 (16,325) (73.0) Floorplan interest expense (6,809) (7,738) (929) (12.0) Other interest expense (5,376) (4,427) 949 21.4 Other income, net 318 191 127 66.5 Loss from continuing operations before income taxes (5,837) 10,381 (16,218) NM Income tax expense (2,238) 3,688 (5,926) NM Income Tax Rate 38.3% 35.5% � � Income (loss) from continuing operations (3,599) 6,693 (10,292) NM Discontinued Operations: Loss from operations, net of income tax (416) (610) 194 (31.8) Loss from disposal activities net of income tax (1,088) (554) (534) 96.4 Net income (loss) $(5,103) $5,529 $(10,632) NM � Diluted net income (loss) per share: Continuing operations $(0.18) $0.33 $(0.51) NM Discontinued operations: Loss from operations, net of income tax $(0.02) $(0.03) Loss on disposal activities, net of income tax $(0.06) $(0.03) � � Net income (loss) per share $(0.26) $0.27 $(0.53) NM Diluted shares outstanding 19,597(A) 22,041 (2,444) (11.1) % � (A) Excludes shares issuable upon conversion of the convertible debt as well as common stock equivalents, as their effect on EPS would be antidilutive. NM � Not Meaningful � Three Months Ended � � � � % � Lithia Motors, Inc. (Continuing Operations) December 31, Increase Increase Preliminary 2007 � � 2006 (Decrease) (Decrease) Unit Sales: New vehicle 13,558 14,302 (744) (5.2) % Used - retail vehicle 8,341 8,869 (528) (6.0) Used - wholesale 5,483 5,821 (338) (5.8) Total Units Sold 27,382 28,992 (1,610) (5.6) � Average Selling Price: New vehicle $29,860 $28,823 $1,037 3.6 % Used - retail vehicle $17,335 $16,445 $890 5.4 Used - wholesale $6,564 $6,254 $310 5.0 � Key Financial Data: Gross Profit Margin 16.5 % 17.2 % -70 bps SG&A as a % of Gross Profit 89.9 % 78.0 % +1,190 bps Operating Margin 0.9 % 3.2 % -230 bps Pre-Tax Margin (0.8) % 1.5 % -230 bps � Gross Margin/Profit Data: New vehicle retail 7.2 % 7.8 % -60 bps Used vehicle retail 13.4 % 14.6 % -120 bps Used vehicle wholesale 0.3 % 1.4 % -110 bps Service, body & parts 46.0 % 47.8 % -180 bps Finance & insurance 100.0 % 100.0 % 0 bps New retail gross profit/unit $2,138 $2,250 $(112) Used retail gross profit/unit $2,320 $2,406 $(86) Used wholesale gross profit/unit $16 $90 $(74) Finance & insurance/retail unit $1,099 $1,120 $(21) � Revenue Mix: New vehicles 57.4 % 58.1 % Used retail vehicles 20.5 % 20.6 % Used wholesale vehicles 5.1 % 5.1 % Finance and insurance, net 3.4 % 3.7 % Service, body and parts 13.5 % 12.3 % Fleet and other 0.1 % 0.2 % � New Vehicle Unit Sales Brand Mix: Chrysler Brands 37.9 % 40.3 % General Motors & Saturn 16.9 % 17.3 % Toyota 13.6 % 13.1 % Honda 7.4 % 5.1 % Ford 4.9 % 6.7 % BMW 4.4 % 3.8 % Hyundai 3.8 % 3.6 % Nissan 3.5 % 3.1 % Volkswagen, Audi 2.6 % 1.6 % Subaru 2.4 % 3.3 % Mercedes 1.4 % 0.9 % Other 1.2 % 1.2 % � Three Months Ended % Lithia Motors, Inc. (Continuing Operations) December 31, Increase Increase Preliminary 2007 2006 (Decrease) (Decrease) � � Same Store Unit Sales: New Vehicle 12,944 14,259 (1,315) (9.2) % Used - Retail Vehicle 7,782 8,844 (1,062) (12.0) Used - Wholesale 5,178 5,815 (637) (11.0) Total Units Sold 25,904 28,918 (3,014) (10.4) � Same Store Average Selling Price: New Vehicle $29,713 $28,823 $890 3.1 % Used - Retail Vehicle $17,265 $16,441 $824 5.0 Used - Wholesale $6,586 $6,257 $329 5.3 � Same Store Revenue: New Vehicle Retail Sales (6.4) % 7.2 % Used Vehicle Retail Sales (7.6) % (8.4) % Used Wholesale Sales (6.3) % 8.6 % Total Vehicle Sales (excluding Fleet) (6.7) % 2.9 % Finance & Insurance Sales (11.7) % 3.7 % Service, Body and Parts Sales 2.8 % 3.0 % Total Sales (excluding Fleet) (5.7) % 2.9 % Total Gross Profit (excluding Fleet) (10.0) % (1.2) % � Same Store Average Gross Profit Data: New Retail Gross Profit/Unit $2,127 $2,253 $(126) (5.6) % Used Retail Gross Profit/Unit $2,210 $2,348 $(138) (5.9) Used Wholesale Gross Profit/Unit $15 $90 $(75) (83.3) � Same Store Total Sales Geographic Mix: Texas 23.6 % 20.0 % Oregon 14.3 % 15.3 % California 12.0 % 13.5 % Washington 11.8 % 11.0 % Alaska 7.3 % 7.2 % Montana 6.6 % 5.7 % Colorado 6.3 % 7.1 % Idaho 5.3 % 5.8 % Nevada 3.8 % 5.3 % Nebraska 2.6 % 2.8 % South Dakota 1.9 % 2.1 % New Mexico 1.3 % 1.1 % Iowa 1.6 % 1.0 % Wisconsin 0.6 % 0.6 % North Dakota 1.0 % 1.5 % Lithia Motors, Inc. (In Thousands except per share and unit data) � � � � � Preliminary Twelve Months Ended % December 31, Increase Increase 2007 2006 (Decrease) (Decrease) New vehicle sales $1,852,468 $1,773,132 $79,336 4.5 % Used vehicle sales 864,422 823,991 40,431 4.9 Finance and insurance 119,551 116,506 3,045 2.6 Service, body and parts sales 383,380 331,564 51,816 15.6 Fleet and other revenues 5,380 5,344 36 0.7 Total revenues 3,225,201 3,050,537 174,664 5.7 Cost of sales 2,679,313 2,529,543 149,770 5.9 Gross Profit 545,888 520,994 24,894 4.8 Selling, general and administrative expense 432,210 392,574 39,636 10.1 Depreciation and amortization 20,882 16,498 4,384 26.6 Operating income 92,796 111,922 (19,126) (17.1) Floorplan interest expense (30,879) (32,957) (2,078) (6.3) Other interest expense (19,943) (14,244) 5,699 40.0 Other income, net 787 956 (169) (17.7) Income from continuing operations before income taxes 42,761 65,677 (22,916) (34.9) Income tax expense 17,173 25,358 (8,185) (32.3) Income Tax Rate 40.2% 38.6% � � Income from continuing operations 25,588 40,319 (14,731) (36.5) % Discontinued Operations: Loss from operations, net of income tax (1,130) (2,461) 1,331 (54.1) Loss from disposal activities, net of income tax (3,306) (554) (2,752) 496.8 Net income $21,152 $37,304 (16,152) (43.3) % � Diluted net income per share: Continuing operations $1.24 $1.91 $(0.67) (35.1) % Discontinued operations: Loss from operations, net of income tax $(0.05) $(0.11) Loss on disposal activities, net of income tax $(0.15) $(0.03) � � Net income per share $1.04 $1.77 $(0.73) (41.2) Diluted shares outstanding 22,082 22,102 (20) (0.1) % Lithia Motors, Inc. � Twelve Months Ended � � � � % � (Continuing Operations) Preliminary December 31, Increase Increase 2007 � � 2006 (Decrease) (Decrease) Unit Sales: New vehicle 63,607 63,960 (353) (0.6) % Used - retail vehicle 41,716 41,808 (92) (0.2) Used - wholesale 25,534 24,213 1,321 5.5 Total Units Sold 130,857 129,981 876 0.7 � Average Selling Price: New vehicle $29,124 $27,723 $1,401 5.1 % Used - retail vehicle $16,739 $16,175 $564 3.5 Used - wholesale $6,506 $6,102 $404 6.6 � Key Financial Data: Gross Profit Margin 16.9 % 17.1 % -20 bps SG&A as a % of Gross Profit 79.2 % 75.4 % +380 bps Operating Margin 2.9 % 3.7 % -80 bps Pre-Tax Margin 1.3 % 2.2 % -90 bps � Gross Margin/Profit Data New vehicle retail 7.4 % 7.7 % -30 bps Used vehicle retail 14.8 % 15.3 % -50 bps Used vehicle wholesale 1.9 % 2.5 % -60 bps Service, body & parts 47.0 % 48.2 % -120 bps Finance & insurance 100.0 % 100.0 % 0 bps New retail gross profit/unit $2,167 $2,124 $43 Used retail gross profit/unit $2,482 $2,473 $9 Used wholesale gross profit/unit $122 $154 $(32) Finance & insurance/retail unit $1,135 $1,102 $33 � Revenue Mix: New vehicles 57.4 % 58.1 % Used retail vehicles 21.7 % 22.2 % Used wholesale vehicles 5.1 % 4.8 % Finance and insurance, net 3.7 % 3.8 % Service, body and parts 11.9 % 10.9 % Fleet and other 0.2 % 0.2 % � New Vehicle Unit Sales Brand Mix: Chrysler Brands 39.5 % 40.7 % General Motors & Saturn 16.5 % 16.9 % Toyota 13.5 % 12.7 % Honda 6.7 % 5.3 % Ford 5.7 % 7.4 % BMW 3.8 % 2.4 % Hyundai 3.8 % 4.2 % Nissan 3.5 % 3.4 % Volkswagen, Audi 2.2 % 1.7 % Subaru 2.2 % 3.0 % Mercedes 1.1 % 0.7 % Other 1.5 % 1.6 % � Lithia Motors, Inc. Twelve Months Ended % (Continuing Operations) Preliminary December 31, Increase Increase 2007 2006 (Decrease) (Decrease) Same Store Unit Sales: New Vehicle 58,575 63,817 (5,242) (8.2) % Used - Retail Vehicle 38,258 41,767 (3,509) (8.4) Used - Wholesale 23,488 24,214 (726) (3.0) Total Units Sold 120,321 129,798 (9,477) (7.3) � Same Store Average Selling Price: New Vehicle $28,750 $27,720 $1,030 3.7 % Used - Retail Vehicle $16,558 $16,174 $384 2.4 Used - Wholesale $6,503 $6,102 $401 6.6 � Same Store Revenue: New Vehicle Retail Sales (4.8) % 5.0 % Used Vehicle Retail Sales (6.2) % 0.5 % Used Wholesale Sales 3.4 % 8.3 % Total Vehicle Sales (excluding Fleet) (4.7) % 4.0 % Finance & Insurance Sales (3.9) % 5.4 % Service, Body and Parts Sales 3.9 % 4.4 % Total Sales (excluding Fleet) (3.7) % 4.1 % Total Gross Profit (excluding Fleet) (4.7) % 1.7 % � Same Store Average Gross Profit Data: New Retail Gross Profit/Unit $2,137 $2,125 $12 0.6 % Used Retail Gross Profit/Unit $2,425 $2,434 $(9) (0.4) Used Wholesale Gross Profit/Unit $118 $159 $(41) (25.8) � Same Store Total Sales Geographic Mix: Texas 22.3 % 18.9 % Oregon 15.7 % 17.1 % California 12.0 % 13.6 % Washington 11.6 % 11.3 % Alaska 7.2 % 7.4 % Montana 6.8 % 6.0 % Colorado 6.8 % 7.2 % Idaho 6.0 % 6.4 % Nevada 4.3 % 5.1 % Nebraska 2.8 % 2.9 % South Dakota 2.3 % 2.1 % New Mexico 1.3 % 1.1 % Iowa 0.4 % 0.3 % Wisconsin 0.3 % 0.3 % North Dakota 0.2 % 0.3 % Balance Sheet Highlights (Dollars in Thousands) Preliminary � � December 31, 2007 December 31, 2006 Cash & Cash Equivalents $24,391 $26,600 Trade Receivables(a) 115,562 118,528 Inventory 595,289 603,306 Assets held for sale 23,807 15,485 Other Current Assets 20,317 15,721 Total Current Assets 779,366 779,640 � Real Estate, net 363,391 327,890 Equipment & Leases, net 99,561 89,213 Goodwill, net 311,527 307,424 Other Assets 75,201 75,190 Total Assets $1,629,046 $1,579,357 � Floorplan Notes Payable $452,581 $499,679 Liabilities held for sale 17,857 11,610 Other Current Liabilities 117,320 118,650 Total Current Liabilities 587,758 629,939 � Used Vehicle Flooring 122,550 95,614 Real Estate Debt 179,160 155,890 Other Long-Term Debt 153,785 140,879 Other Liabilities 77,978 63,642 Total Liabilities $1,121,231 $1,085,964 � Shareholders' Equity 507,815 493,393 � � Total Liabilities & Shareholders' Equity $1,629,046 $1,579,357 � (a)Note: Includes contracts-in-transit of $54,224 and $56,211 for 2007 and 2006 � Other Balance Sheet Date (Dollars in Thousands) � Current Ratio 1.3x 1.2x LT Debt/Total Cap. (Excludes Real Estate) 35% 32% Working Capital $191,608 $149,701 Book Value per Basic Share 26.00 25.32