Lithia Motors appears poised for explosive growth.
On a day when the Medford-based auto retailer reported increased per-share earnings for the 26th consecutive quarter, the phrase "dry powder" cropped up six times during a conference call in reference to acquisitions or other growth opportunities.
"We want to build market share," CEO and President Bryan DeBoer said during Wednesday's call with analysts and investors. "We want to build stability and we want to build those margin improvements and revenue growth over a period of time ... which is what creates that organic dry powder which allows us to continue to grow our same-store sales to reach potential within those new acquisitions; it just takes some time."
Spurred by service and used-vehicle sales, Lithia reported net income of more than $50.7 million during the first-quarter of 2017, up 26 percent from nearly $40.3 million a year ago, on revenue of more than $2.2 billion, a 12.3 percent gain over the $2 billion first quarter 2016 figure.
Per-share earnings increased 30 percent to $2.01 from $1.55 in the first quarter of 2016. The nation's fourth-largest auto retailer reported an overall same-store sales gain of 3 percent, led by an 8 percent bump in service, body and parts, and a 6 percent sales revenue increase in used vehicles. New-vehicle sales were flat.
DeBoer hinted strongly Lithia would be adding to its portfolio of 152 dealerships in 17 states through medium-market domestic and import buys, large-market luxury shops, or clusters of domestic, import and luxury franchises in major markets. The number of U.S. dealerships declined to 18,058 last year from 20,453 in 2009. Yet, just 7 percent of the dealerships are owned by the Top 10 retailers.
"The opportunity to consolidate dealerships has never been greater and will continue to grow through strategic acquisitions," DeBoer said. "These acquisitions provide the internal dry powder to continue to grow the organic earnings of our base business as they are rebuilt, integrated and improved."
Lithia tends to counter industry approaches, unabashedly leaning on its used-vehicle sales to compete with other major retailers for market share. There are forecasts that new-vehicle sales will take a dip this year, a concern for some retailers.
"I think because we’re in an industry that is so measurement focused, it becomes the focus point of many of us rather than the fundamentals of what our business is as a capital engine for growth," DeBoer said. "The idea that there is internal dry powder within our organization that can grow gets lost somehow in the clouds and the fog of pricing disconnects and incentives or used-vehicle pricing being down 0.3 percent."
He said the ability to adapt to the demands of individual markets played a bigger role than incentives.
The ability to boost performance at many dealerships provides opportunity to improve on the company's 5 percent operating margin.
"Our objective is to get our stores to that range or beyond," North said. "That can take 24 (or) 36 months in some cases. But that’s part of the dry powder that remains available to us to be able to grow organic earnings into the future, because a large majority of our stores in the $9.5 billion revenue base are still not optimized to the way we see them."
DeBoer said Lithia continues its push toward selling 75 used vehicles per month at each of its locations. During the quarter, Lithia turned over 66 used units, up from 64 a year ago.
"The past half decade of results have been stunted by the lack of vehicle supply," DeBoer said. "A trend which is finally reversing."
The company also announced an 8 percent increase in its dividend to 27 cents per share, payable May 26 to shareholders of record May 12.
Lithia shares rose 11.4 percent during Wednesday trading, closing at $93.48.
— Reach reporter Greg Stiles at 541-776-4463 or email@example.com. Follow him on Twitter at www.twitter.com/GregMTBusiness, and read his blog at www.mailtribune.com/Economic Edge.