Lithia Motors, Inc. (NYSE:LAD) Q1 2023 Earnings Call Transcript - Page 3 of 6 - InvestingChannel

Lithia Motors, Inc. (NYSE:LAD) Q1 2023 Earnings Call Transcript

I guess. Are you — do you have any commentary on driveway.com on when that could potentially inflect positively to profitability?Bryan DeBoer Well, in terms of DFC, we still are looking towards the end of 2024 profitability. Okay. And I think as Chuck mentioned, we did have a faster growth rate in DFC because of those two factors. Obviously our overall growth as an organization, but our penetration rate was forecasted internally at 12% and we were at 14% and the primary reason was because there was better economics in what we saw looking forward.As Chuck mentioned, the delinquencies were down and looked good and I think that the fundamental driving factor is at three times more profit over the life of that loan, it’s an annuity that we’re really paying for, that even though it may hurt the quarter a little bit, it is the right answer, especially since we use the same or better buying decisioning and the criteria is more selective and that’s why we share with you both the loan to values as well as our FICO scores.So you can definitely see that and I think as we continue to mature DFC, it’s a lot easier to be able to make those structural changes that are best for the long game rather than just what happens in the quarter.Ryan Sigdahl Great.

If I can sneak one more quick one in just a slight change in wording around the 2025 plan. You said the word goals, I don’t believe you previously referred to it that way. I guess is your confidence changed in achieving those targets on that timeline by 2025 or am I just kind of overreading into that?Bryan DeBoer Oh, that’s probably just vernacular. I would say this, I have very little doubt in our ability to achieve the $50 billion in revenue. You can look at our slide deck, we did tweak some of the channels a little bit in terms what their contributions are and you can see that in the idea of getting to $55 plus in EPS is still — we’re very confident in that strategy.Most importantly, it’s important to remember that though it may have — it may appear to be a little bit tougher quarter, the things in our ability to execute are quite strong as an organization because we’re building the foundation to do something that no one has really been able to do.

And that’s constructively improve our margin formula as well as our cost formula to drive to the $2 of EPS beyond the 2025 plan.Over the coming quarters, again we’ll be able to share more information, but we all know that what DFC can do, okay. We’ve just went through the biggest downdraft in interest rates that we probably could ever feel and are standing here stronger than ever in that part of the organization. We’re curbing our burn rates in Driveway, which allows us the ability to touch 50 times more customer than our traditional store network touches and we’ve got a pretty good game plan on our — on our green car strategies, as sustainability continues to gain market share in mobility. So we’re pretty excited of what’s happening and look forward to continued growth as an organization.Ryan Sigdahl Very good.

Best of luck guys. Thanks.Operator Thank you. Our next question has come from the line of Rajat Gupta with JPMorgan. Please proceed with your questions.Rajat Gupta Hey, good morning. Thanks for taking the question. Just had one quick clarification on DFC. The change in the 2023 guidance, from $10 million profit to the $40 million loss, is that all just the change in reporting or is there an assumption of higher charge of there as well?Tina Miller Hi, this is Tina. There’s a couple things. It’s mainly driven by the change in presentation as we’ve taken the investor feedback and really appreciated all of that so that we clearly are combining what’s related to DFC to give clear line of sight of that business. So most of that is net charge off reclassification, which in the investor deck we do have a slide that articulates and sort of demonstrates what that looks like.

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