Sagging sales hurt Lithia's bottom line

The rocky road of recession chipped away at Lithia Motors's bottom line during the final three months of 2007.

The Medford-based auto retailer swung to a fourth-quarter net loss of $5.1 million, or 26 cents a share, from a profit of $5.53 million, or 27 cents a share, in the fourth quarter last year.

"Recessionary market conditions accelerated in the fourth quarter for Lithia," Chairman and Chief Executive Officer Sid DeBoer said during a Wednesday afternoon conference call. "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."

Continuing operations saw a loss of $3.6 million, or 18 cents a share, from a profit of $6.69 million, or 33 cents a share, a year earlier. Results for continuing operations from the most recent period include 6 cents a share in losses from a $1.77 million "franchise impairment" charge. During the quarter, the company's revenue fell 0.4 percent to $705.8 million from $709 million in the year-ago period. Analysts polled by Thomson Financial expected, on average, per-share earnings of 27 cents and revenue of $708.8 million.

Lithia retailed 105,323 new and used vehicles in 2007. The company expects full-year per-share earnings from continuing operations of $1 to $1.30 and sales of $3.2 billion to $3.3 billion.

Lithia also said it is completing a review of potential reporting irregularities related to retail sales at some of its stores, so current financial figures are still preliminary. DeBoer said he didn't expect the review to result in a material charge to income. He said the investigation dealt with gross profit, not revenue, and centered on the timing of transactions involved in automaker incentives for dealer sales volume.

"We had irregularities at several locations," DeBoer said. "Our exposure is 3 to 5 cents per share. The number of stores is limited, but we are looking at others. We're comfortable they are isolated incidents and I'm not overly alarmed. We don't anticipate anything, although there is no assurance."

He said restructuring already in the works allows for closer monitoring and better controls.

Lithia said it expects a first-quarter per-share loss from continuing operations of 5 cents to 10 cents, but anticipates rebounding later this year.

"We had a first quarter in 2003 and by fourth quarter we were exceeding previous years," DeBoer said. "This is the fourth time I've faced what I've considered a recession."

Lithia reaffirmed its expectation of generating per-share earnings above $3 in 2011 and anticipates sales of $5 billion at that time.

Reach reporter Greg Stiles at 776-4463 or e-mail

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