Automotive retailer Lithia Motors (NYSE: LAD) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 4.9% year on year to $9.68 billion. Its non-GAAP profit of $9.50 per share was 10.4% above analysts’ consensus estimates.

Is now the time to buy LAD? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Lithia’s third quarter reflected stable execution, with both revenue and adjusted earnings surpassing Wall Street expectations, while the market reaction was muted. Management highlighted accelerated growth in used vehicles and aftersales as primary drivers, with CEO Bryan DeBoer citing a “focus on execution” that led to improved same-store sales across all business lines. The company also benefited from cost control efforts and enhanced integration of digital platforms, supporting a more durable earnings mix and improved cash flows.

Looking forward, Lithia’s outlook centers on expanding its high-return used vehicle operations, further scaling aftersales, and sustaining cost discipline. Management expects continued momentum from omnichannel initiatives and market share gains, especially as new and more affordable vehicle models enter the market. CFO Tina Miller noted, “Our omnichannel model creates durability and flexibility as business conditions evolve,” while DeBoer emphasized ongoing share buybacks and targeted acquisitions as levers for compounding shareholder value.

Key Insights from Management’s Remarks

Management attributed the third quarter’s results to robust used vehicle sales, recurring aftersales earnings, and tight operating expense control, while highlighting progress in digital integration and U.S.-focused acquisitions.

• Used vehicle outperformance: Lithia’s used vehicle segment saw significant growth, with unit sales up 6.3% and value autos rising 22.3%. Management credited an emphasis on sourcing vehicles directly from consumers, resulting in 74% self-sourcing—its highest rate of the year—which improves margins and inventory efficiency.

• Aftersales as earnings anchor: Aftersales, including service and parts, drove much of the company’s gross profit growth, with gross profit up 9.1% and margins expanding to 58.4%. Management noted that customer pay and warranty work both contributed, supported by inflation-driven increases in labor rates.

• Digital platform integration: Lithia advanced its digital strategy by unifying customer experiences across its Driveway.com, Green Cars, and My Driveway owner portal platforms. This integration aims to simplify the shopping, financing, and service process, supporting customer retention and operating efficiency.

• UK operational response: While the UK contributed a smaller share of revenue and profits, management highlighted headcount reductions, productivity gains, and the addition of new Chinese brands as ways to offset margin pressure from higher labor costs and regulatory changes.

• Capital allocation shift: The company prioritized share repurchases, buying back 5.1% of outstanding shares in the quarter, and continues to balance between opportunistic buybacks and targeted U.S. acquisitions, especially in regions with population growth and higher operating profits.

Drivers of Future Performance

Lithia’s outlook is shaped by its strategy to grow high-margin used and aftersales business, sustain digital transformation, and manage costs amid changing industry headwinds.

• Expansion of used and value autos: Management aims to further grow the used vehicle segment, especially value autos, by maximizing direct consumer sourcing and leveraging its reconditioning network. CEO Bryan DeBoer views this as a "bulletproof segment,” largely shielded from new vehicle pricing pressures, and expects it to drive stable cash flows across cycles.

• Aftersales and omnichannel scaling: The company expects continued growth in aftersales by increasing repair order volume and leveraging digital tools to boost customer retention. Investments in the omnichannel experience are intended to deepen engagement and create repetitive ownership cycles, which management believes will smooth out volatility from new vehicle sales.

• Operational efficiency and capital deployment: Lithia plans to maintain strict SG&A discipline and focus on high-return capital allocation, balancing share buybacks with selective acquisitions. Management acknowledged that labor inflation and potential tariffs remain headwinds, but expects digital and scale efficiencies to help offset these challenges.

Catalysts in Upcoming Quarters

In the quarters ahead, our analysts will be focused on (1) the sustainability of used vehicle volume gains and continued success in sourcing directly from consumers, (2) progress in integrating digital platforms and expanding aftersales gross profit, and (3) the pace and profitability of targeted U.S. acquisitions. Monitoring cost control initiatives and any shifts in tariffs or labor inflation will also be key to assessing execution against strategic goals.

Lithia currently trades at $308.35, down from $312.22 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

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