Greetings, and welcome to Lithia Motors First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, as a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Jardon Jaramillo. Thank you. You may begin.

Good morning. Thank you for joining us for our first quarter earnings call. With me today are Bryan DeBoer, President and CEO; Adam Chamberlain, Chief Operating Officer; Tina Miller, Senior Vice President and CFO; and finally, Chuck Lietz, Senior Vice President of Driveway Finance. Today's discussion may include statements about future events, financial projections, and expectations about the company's products, markets, and growth. Such statements are forward-looking and subject to risks and uncertainties that could cause actual results to materially differ from the statements made. We disclose those risks and uncertainties we deem to be material in our filings with the Securities and Exchange Commission. We urge you to carefully consider these disclosures and not to place undue reliance on forward-looking statements. We undertake no duty to update any forward-looking statements, which are made as of the date of this release. Our results discussed today include references to non-GAAP financial measures. Please refer to the text of today's press release for reconciliation of comparable GAAP measures. We have also posted an updated investor presentation on our website investors.lithiadriveway.com, highlighting our first quarter results. With that, I would like to turn the call over to Bryan DeBoer, President and CEO.

Delivered strong results and continue to charge towards the potential of our integrated ecosystem, powered by the strength of our talented people. During the first quarter, we generated diluted earnings per share of $7.94, a 34.8% increase, and adjusted diluted earnings of $7.66, a 25.4% year-over-year increase reflecting disciplined execution and growing contributions from our high-margin adjacencies. We are pleased to see our first quarterly year-over-year adjusted earnings increase since the fourth quarter of 2022. Notably, we saw year-over-year increases each month in the first quarter, demonstrating that these improvements were not just a result of tariffs. While the full earnings power of our design is still ahead, these results underscore the effectiveness of our strategy serving customers seamlessly across digital and physical channels, while building a more profitable, diversified, and scalable platform. Adjacencies are now contributing meaningfully to our earnings and delivering measurable gains in engagement and unit volume, now exposing the distinct competitive differentiation of our design and our strategy. Our focus in 2025 is to continue to execute, doubling down on our commitment to building customer loyalty, potential, and growth for LPG. We are confident in our unique ability to deliver sustainable performance, capture market share, and accelerate the profitability of our ecosystem through the latent power of our people and regenerative cash flows. Our foundational strengths enable us to continue our growth as the world's largest auto retailer as we build momentum and continue our pathway to achieving $2 in EPS per $1 billion in revenue. In the first quarter, Lithia Driveway grew revenues to a record $9.2 billion, a 7% increase from Q1 of last year. This growth is a result of our continued focus on improving market share and operational effectiveness. The team's commitment to realizing our goals is also reflected in our same-store performance and sequential improvements in gross margin. After a robust start to the year, we're encouraged by the growing opportunities to expand market share, unlock greater profitability across our adjacencies, and drive further productivity as we continue to scale the full potential of our ecosystem. These results reflect the strength of our store leaders, their autonomy to drive performance by understanding customers, and their manufacturer supply and pricing dynamics to adapt quickly to local demand. We continue to closely monitor potential tariff impacts and broader shifts in consumer sentiment. We are encouraged by our OEM partners' response to the evolving tariff landscape, where brands are keeping customer affordability in mind as they work to stabilize pricing. Our diversified omnichannel ecosystem spans retail, digital, and fleet channels across North America and the United Kingdom. With offerings that range from new vehicles to twenty-year-old value autos, we are equipped to meet customers at any affordability level and have adjusted our mix to be well diversified and perfectly aligned with market dynamics. Beyond retail units, our after-sales business, which represents approximately 40% of our gross profit, is well-positioned to benefit from tariff-driven market changes, and our financing operations and fleet management businesses are designed to deliver consistent earnings growth despite retail fluctuations. This flexibility and the core strength of our model and the key driver of our long-term stability is creating a best-in-class industry profitability equation. These adjacencies continue to deliver meaningful contributions as part of our integrated ecosystem. Finance operations continued to deliver strong profitability in the first quarter, supported by improving net margin and ongoing cost efficiencies. We also made further progress in refining our digital retail strategies with Driveway and Green Cars continuing to bring new customers into our ecosystem and enhance overall engagement. Early returns on our Wills investment remain strong, and we continue to build momentum around the synergies these partnerships unlock across our commercial and retail channels. As we look ahead, we are single-minded in our goals. Unlocking the profitability of the life cycle by creating customer loyalty, achieving our potential, and unlocking growth by delivering on our core strength execution. Now turning to our unique and difficult-to-replicate strategy. The foundation of the LAD omnichannel strategy continues to be our expansive network of stores and high-performing teams. 2025 is a year of acceleration of our strategy, and in the first quarter, that reaches customers across North America and the United Kingdom, strengthened by the powerful adjacencies we increased profitability, added new stores, and integrated key adjacencies into our day-to-day operations. We operate within one of the largest and least consolidated industries. Our ability to be the most competitive acquirer and an efficient operator is a core strategic advantage, one that positions us to grow profitably. Our model is built to flex and adapt, meeting customer needs across the entire ownership life cycle with transparency, convenience, trust, and empowerment. Our omnichannel ecosystem continues to expand our reach and deepen our customer engagement, with the My Driveway portal placing more control, visibility, and simplicity into the hands of our customers. Digital platforms like Driveway and Green Cars remain key entry points into our ecosystem, drawing in new users and reinforcing lifetime value through retention. These capabilities, combined with disciplined capital management and consistent free cash flow generation, enable us to stay agile and forward-looking. As we move through 2025, our ecosystem will continue to unlock performance across channels and geographies, boosting loyalty, expanding market share, and supporting our long-term target of sustainable profitable growth. Acquisitions remain a core competency, and we continue our disciplined approach to look for accretive opportunities that can improve our network, focusing primarily on the United States. We target a minimum after-tax return of 15% and acquire for 15% to 30% of revenues, or three to six times normalized EBITDA. Our track record brings a 95% success rate of above-target returns and demonstrates that LAD's growth strategy remains grounded in disciplined execution through strategic acquisition targeting. With our growing capital engine, we're able to deploy our free cash flows to generate the highest returns while remaining flexible to market conditions. We are maintaining an adjusted capital allocation to balance and share buybacks equally, especially given the attractive relative valuation of our own shares. In the near term, we remain disciplined as acquisition pricing returns from historical highs. And we continue to evaluate high-quality opportunities. The relative values of our own shares support a balanced capital deployment approach, and in the first quarter, we repurchased $146 million or nearly 2% of our outstanding shares at attractive valuations. We continue to evaluate acquisitions and share repurchases, and we will focus on maintaining the flexibility to pursue this balanced approach, and we continue to target $2 to $4 billion in annualized acquired revenues in the coming years. Together, these elements form a clear path towards our long-term goal of generating $2 in EPS for every $1 billion in revenue in a normalized environment as outlined by our slide 14 of our investor presentation. The drivers of that steady-state performance are now fully within our control and include the following. First, continue to improve our operational performance by realizing the massive potential in our existing stores. Second, optimizing our network by acquiring and driving high performance in larger automotive retail stores, in the stronger profitability regions of the Southeast and South Central United States and leveraging our digital channels will bring US market share to 5%. Today, we have a combined market share of a little over 1%. Third, financing of up to 20% of units through DFC. Fourth, through scale, we are driving down vendor pricing with solutions like Pinewood, leveraging corporate efficiencies, and lowering borrowing costs as we path towards an investment-grade credit rating. Combining these levers with increased market share, we see a pathway to achieving SG and A as a percentage of gross profit in the mid-50% range. Fifth, maturing contributions and growing synergies from our omnichannel horizontals, including fleet management, DMS software, charging infrastructure, and captive insurance. And finally, delivering ongoing returns of capital to shareholders through increased share buybacks and dividends. We are uniquely positioned to scale our mobility ecosystem and deliver more impactful customer experiences across the ownership journey. With the foundational elements of our strategy in place, our focus is centered on operational execution. Confident in our ability to elevate performance, and continue setting the standard for the industry. Before I walk through our key financial highlights, I want to take a moment to recognize Adam Chamberlain, who will be transitioning from his role as our Chief Operating Officer to become CEO of Mercedes Benz USA. Adam has made a lasting impact on our organization. Strengthening the speed of our operations elevates our reflects the strength of our partnership with Mercedes Benz, we're proud to see him step into this important role and we look forward to working closely with our operational leaders and executing at a high level advancing our mission growth powered by people. Thank you, Adam. We're really going to miss you. Onto our operating results and how we're driving performance at the store and departmental levels. Our performance this quarter marked another meaningful step forward. We delivered year-over-year growth in new vehicles and aftersales and experienced continued sequential improvements in used autos, particularly in the value auto segment. These improvements were all supported by continued strength in SG and A execution coming off the back of our sixty-day plan on our core drivers of profitability. As we continue the year, we remain focused on delivering customer optionality to grow market share, and maintaining disciplined cost control. Our operational success is guided and inspired by our Lithia Partners Group or LPG, and for 2025, I'm happy to announce and include our store departmental leaders in this recognition as well. Again, congratulations to all 2024 winners as well. Turning to our same-store sales performance. Total revenues increased by 2.5%, and gross profit increased 1.8%, primarily due to sequential strength across all business lines that was partially offset by a decline in GPUs. Total unit sales increased by 1.5% year over year, while total gross profit per unit of $43.00 was down $144 compared to the same period last year. New vehicle units increased 3.6% year over year with continued strength in import manufacturers. Our front-end GPUs were $3,046 consistent sequentially. Used vehicles were down slightly at 0.4% year over year with a considerable quarter-over-quarter sequential improvement. Value auto sales were particularly impressive with a 38.8% improvement from last year. Cores were down 9.3% where procurement remains a focus. Used autos are foundational to our model, and certified units were up slightly at 0.7%. Front-end GPUs for used vehicles were stable year over year at $1,877. We expect to see ongoing positive trends in the quarters ahead. F and I growth was also particularly strong in the first quarter. We delivered 3.4% year-over-year growth in same-store gross profit and $1,881 on a per unit basis. As a reminder, this is the first quarter where Penn Dragon's comparatively low F and I impacted sequential same-store sales results. Despite this headwind, this was a $35 increase year-over-year and reflects the continued opportunity in this high throughput area. Our after-sales performance was also at 4%, delivering an after-sales gross profit increase of 7.5%. Adjusting for sales days, after-sales revenue was actually up over 4%. Warranty work showed another strong quarter with gross profits increasing 19.7% year-over-year. Our team is focused on creating durable customer retention through personalized experiences and effectively managing the ongoing demand for this high-margin work. Now turning to inventory where we realized significant improvements towards our sixty-day plan's targeted inventory levels in the first quarter. New vehicle DSO decreased from 59 days in Q4 to 43 days at the end of this quarter while used vehicle DSOs decreased from 53 days to 45 days. Absolute inventory balance decreased by $163,000,000 and we are now encouraged by the savings we are seeing in our floor plan expense which decreased 6% year-over-year. Our strong start to the year reflects the power of our ecosystem and the focus of our teams. As we continue executing on our strategy, we are excited by the opportunity to drive unparalleled growth and long-term value. With that, I'd like to turn the call over to Tina who will walk through our financial results in more detail.

Thank you, Bryan. The momentum across our operations is creating a strong foundation to accelerate our value, particularly through our SG and A execution, increasingly profitable financing operations, disciplined capital allocation, and continued focus on balance sheet strength. We're encouraged by our SG and A performance to start the year, building on the improvements we promised and delivered as part of the sixty-day plan in the second half of 2024. Our adjusted SG and A as a percentage of gross profit was 68.2% during the quarter, a 120 basis point decline from the prior year, and 67% on a same-store basis, a 150 basis point decline. While we are pleased to see continued progress, we remain focused on disciplined cost management every day. We continue to see opportunities to enhance efficiencies across the business with targeted efforts underway in both North America and the UK. As we move through the year, we believe we're on track to achieve same-store SG and A in the range of 65.5%. Driving performance through people was on full display this quarter. We are proud of the progress we've made to start 2025 with strong execution across operations and clear momentum in key areas of the business. As we look ahead, we remain focused on deepening customer loyalty, unlocking store and departmental potential, and scaling growth across our ecosystem. Starting with our financing ops segment led by DSC, we delivered another quarter of profitability with income of $12,500,000 compared to a loss of $1,700,000 in the same period last year. This performance reflects the continued maturity of our portfolio, improved capital efficiency and continued maturation in our securitization performance. Following a full year of profitability in 2024, we expect a consistent earnings trajectory in 2025 as we balance yields, growth, and risk. DSC originated $623,000,000 in loans during the quarter, a 24% sequential increase bringing the total portfolio balance to over $4,000,000,000. Portfolio quality remained strong, supported by underwriting and a focus on higher credit tier originations with new FICO scores expected to average 730 in 2025. The net interest margin continued to be expanded, increasing 17 basis points year-over-year and seven basis points sequentially. NIM expansion increases profitability and adds flexibility to continue scaling the platform as we move toward our goal of 20% penetration. These results demonstrate the strength of our financing platform and its growing contribution to our long-term earnings potential. Overall, our financing operations adjacency has delivered high performance growth and is a key element of our $2 of EPS for every $1,000,000,000 of revenue target. As each loan originated by DSC contributes up to three times more than traditional indirect lending. We remain confident in this segment's long-term earnings growth and expect increasing profitability as we increase penetration and strengthen our track record. Now moving on to our cash flow performance and balance sheet. We reported adjusted EBITDA of $402,100,000 in the first quarter, a 17.1% increase year-over-year driven by increased earnings and decreasing floor plan expenses. During the quarter, we generated free cash flows of $276,000,000. Our capital deployment strategy focuses on the efficient allocation of the business's regenerative cash flow preserving the quality of our balance sheet while supporting our growth initiatives and allowing us to respond opportunistically to a complex environment. This quarter, we completed a couple of acquisitions deploying some buybacks to be opportunistic with the fluctuating market. In the first quarter, we repurchased 1.7% of our outstanding shares at a weighted average price of $329. $687,000,000 remains available under our share repurchase authorization. Looking ahead, we will continue to remain agile in reallocating capital where it generates the highest returns. Expect to allocate 30% to 40% of free cash flow to our share repurchases while continuing a disciplined approach to M&A opportunities. Additionally, capital expenditures have moderated and are now primarily directed toward network optimization and meeting OEM facility requirements. We ended the quarter with a net leverage of 2.5 times in line with our long-term target of two to three times and well below our bank covenant requirement of 5.75 times. These metrics adjusted for the impact of floor plan debt collateralized by vehicle inventory, which is unique to our industry and integral to our operations. The industry treats the associated interest as an operating expense and EBITDA and excludes the debt from balance sheet leverage calculations. Similarly, we exclude ABS warehouse lines and issuances to capitalize DSC from our leverage calculations. While we opportunistically allocated capital during the quarter, we maintain our long-term focused financial discipline to support our planned growth. Our strategy remains focused on delivering strong consistent growth and top-tier shareholder returns through the continued expansion of our omnichannel platform. With the right team, robust tools, and a solid financial foundation, we're positioned to scale profitably across both our core operations and adjacencies. As we look ahead, our diverse and capable teams are united by a commitment to exceptional customer experiences and are well-equipped to unlock the next phase of growth in 2025 and beyond. This concludes our prepared remarks. With that, I'll turn the call over to the operator for questions.

Thank you. At this time, we'll be conducting a question and answer session. You may press 2 if you would like to remove your question from the queue. Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment please while we poll for questions. Our first question comes from Ryan Sigdahl with Craig Hallum Group. Please proceed with your question.

Hey. Good morning, guys.

Wanna start just at a higher level kind of what you're seeing from a current tariff environment. If you wanna talk monthly trends throughout the quarter and then into April, that might be helpful. Both from a demand and GPU. And then kind of second part to that, how you view your higher inventory levels relative to some of your peers, how that positioned you in this environment, again, kind of more into April from that question standpoint? Sure, Ryan. Good morning. This is Brian. I think we're very fortunate that with tariffs, we sit quite nicely. We have over 45% of our inventory that that's going to be where the current tariffs are sitting, obviously, we know that they're still a little bit in limbo. But where the current tariffs are sitting, we have about 45% of our inventory that's not impacted. Okay, which is I believe in most of the major retailers, that's probably the most diversified and the least impacted, which we're pretty excited about that. I think more recently, as we think about moving forward, our inventories have come down a lot. I mean, we dropped our inventory in both new and used almost ten day supply quarter-over-quarter, which is a good step forward. And I think when we think about going forward, it's more about store leadership staying dynamic and specifically focusing on their brand and their market. And we've been pretty successful that way. You also had asked a question about what happened sequentially in the quarter. Okay? We were actually motivated by a strong January, a strong February, and then early March is when the tariff discussion started, and it came out strong as well. So it was consistent throughout the quarter, and we're pretty confident that, looking into Q2, we've got good foresight into what our inventories and our costs are, and most manufacturers have stabilized pricing. For some level at least through the 2025 model year and we'll see what happens beyond. And hopefully, there's some relief to the current situation given.

Helpful. Staying on the tariff topic, any way to put kind of guardrails? And you did this several years ago. Kind of with the SAAR just the levers you can pull and kind of the earnings power and, up down from a leverage standpoint. But if ultimately, in the back half of this year and next year, we go to a 14 or 15 million SAAR, prices stay higher, affordability, etcetera, etcetera. I guess any way to help us kind of from an earnings power standpoint and what that might mean for you guys?

Ryan, I think it's important to remember where our product mix is and that we've designed our entire ecosystem around affordability. Having twenty-year-old cars and you saw that we had a 39% increase in our value auto sales year-over-year. That's a big increase, and it shows the strength of the model that, you know, we're a little less concerned about what the specific tariff is so as they stay within the ecosystem. So create affordable products from top to bottom, whether it's after sales, new cars, or used cars. And stay focused on what we can control. Because, ultimately, we do have a fairly adaptable model, okay, because of that affordability range. And remember this, I mean, Driveway.com, Green Cars, and DSC help massively in terms of how we think about diversification. And now that DSC is turning some pretty good profits, you know, that takes out some of the volatility as we look at things. I would note one other thing for everyone. It's important to note that the Pinewood market, valuation change was 27¢. So we were at $7.93, which was considerably ahead of consensus. Okay? And that's something that to some extent is outside of our control.

Helpful. Thanks, Brian. Estimates also walked higher over the last week or two. Would have beat stale ones. So thanks. Good luck, guys.

Okay. Thanks.

Our next question comes from John Murphy with Bank of America. Please proceed with your question.

Good morning, everybody. Hey. This is Brian. Just to stay on tariffs just for a second from two different prongs. You know, first, you know, what kind of communication have you received from your factory partners? And have you seen any impact to the M and A environment as a result of the uncertainty around tariffs?

Maybe start with the latter. We haven't seen a big impact in the M and A environment. However, it does appear to be softening over the last, I would say, three to four months. But specific to March, we haven't seen any major changes. In terms of communications from our manufacturers, I might let Adam jump in on that real quickly.

Hey, John. Good morning. I think we've seen great as far as the manufacturers know exactly what they're dealing with because it obviously is an extremely volatile situation, John. I think we've seen clear communication. We had some early communications around guaranteeing holding prices through certainly for most OEMs, it's through May. That really takes care of the 2025 model years. And obviously, in that context, we're also kind of bottom of the funnel. Right? So the OEMs got to deal with their support and help if we can. But ultimately, they've got to deal deal with the administration and how they allocate their resources and that investments to manage the tariff situation. So we sit kind of a ways below that. But we've had really good clarity and leadership from the majority of our OEM partners as it relates to that. I think the other point is our job, as Brian said, is just to be disciplined moving forward. So our stores are being disciplined in terms of the way that they manage their operations. And I think we demonstrated last year we can adapt and flex pretty good when we need to. So that's how I think about it, John. Thank you.

That's helpful. And, Brian, just a second question. When we think about sort of the adjacencies, particularly DFC, and then the benefits you'll get on SG and A over time. You know, is there kind of a notion that you might lower your expectation for front-end gross to take more market share over time in kind of how do you balance that out? I mean, getting UIOs is mission-critical for parts and service. So just curious, you know, how you think about that full circle equation. Does this allow you to take more market share and then feed the beast at the back end and grow earnings even stronger? And just kind of how do you balance that all out?

Great question, John. And I think that our original thesis on the design was that if we're able to create transparent, simple experiences for our consumers, then there's actually a price inflection upward, not downward. Okay? We already buy cars, and our cost of vehicles are at a cost advantage of about 5 to $700 over the used-only retailers. Important to note. But we also give away that 5 to $700 in terms of price to market what we sell cars for because we negotiate in lieu of getting more customers financed. Okay? So I would say if anything, today, we're looking at a $4,100 to $4,300 total vehicle gross profit. Okay? That's down a couple hundred bucks primarily because of the mix change in Pendragon that rolled in this quarter. You remember it was $4,300 to $4,500 prior. We also did elevate our new vehicle gross profit because our mix is so much better and has so much more luxury as well as Southeast exposure, which is higher gross profits. So we raised our expectations internally to $2,600 to $2,800 on new vehicle gross profit. If we're looking out four to five years, I believe that there's an opportunity to grow our used vehicle gross profit which is the biggest impact of the Driveway ecosystem or green cars sales, and it's primarily because you're getting more eyeballs on each and every car in that price inflection point. That today, we don't have all those eyeballs.

Okay. Let me sneak in one last one. That's helpful. Tina, on the ABS your deals are doing with DFC. I'm just curious what kind of receptivity you're seeing in the market what market conditions are currently like and over time, is there opportunity to do larger and larger deals? You get more seasoned in the market?

We had a very successful ABS issuance in the first quarter, and that went really well with a number of our tranches that were subscribed. Hey, John. This is Chuck. You know, right now, we had a very right now though, the ABS term market is rather frothy and choppy. That's just a reflection of where the overall capital markets are going. We do expect that to stabilize though, going forward. And we'll be very diligent about making sure that when we do launch our next issuance, it'll be at a point in time that is optimal for our business. So we don't see any long-term impact on our capital structure for DFC.

But fair to say there's plenty of room in the warehouse facility?

Oh, absolutely. Plenty of room on the warehouse facility to absorb that if there is choppiness in the term market.

Thanks so much, guys. Congrats, Adam. Thank you, guys.

Thanks, John.

Our next question comes from Rajat Gupta with JPMorgan. Please proceed with your question.

Great. Thanks for taking the And just wanted to, you know, convey my congrats to Adam as well. I had a first question just on SG and A. The sequential pickup on SG and A to gross was a little higher than seasonality. You know, if we exclude The UK. Curious if you could unpack that for us a little bit because it looks like the SG and A dollars went up more than the gross profit dollars relative to the fourth quarter. If you could just, you know, elaborate on that a little bit would be helpful. And also just a clarification, the Pinewood 27¢ charge. That all of that was flowing to other income. Am I right? If not, you know, if you could clarify that as well would be helpful. And I have a quick follow-up.

Hi, Rajat. This is Tina. Just on your Pinewood question, yes, the impact of the fair market value adjustment on Pinewood does flow through others. You can capture that and see that in that line. It was a pretty decent impact you adjust for that. Our overall EPS performance was really strong. From an SG and A perspective, you know, I think most of it is really driven by seasonality. When you look at the year-over-year performance on SG and A, I think we're really happy with it. Same store improved by 150 basis points on a consolidated 120 basis points, one of the first quarters where we're seeing that decline in SG and A as a percentage of gross profit. So really, the continued discipline from our sixty-day execution last year, and continued flow through of that discipline by our stores. It'll be something that we continue to watch, obviously, and perform in throughout 2025.

Got it. And you think about the path from that 68% you know, within your guidance range, like, say, the midpoint, is there more cost reduction to come, or is this just more about just leveraging the gross profit know any areas within the gross profit bucket, you know, like marketing services or other areas that there's some opportunity? That should be we should be making. And, obviously, we have the full year guidance ranges out there, but it just seems like a pretty decent size improvement baked in for the remainder of the year to get to your to get to your SG and A guide. And, you know, especially with the new car GPUs, you know, expected to come down through the course of the year. Thanks.

Rajat, this is Brian. Maybe I could elaborate a little bit as well. I think when we think about the original sixty-day plan that's now part of the everyday plan, our field and our operational leaders understand that our goal is to drop about seven basis points out of the model each and every month starting in the second half of this year. So now that's on our pathway to the mid-50% SG and A range. Okay? So it's important to remember about how we think about things. But, again, this isn't gonna happen overnight. I mean, we get benefits all over the ecosystem, including the eventual transition into the Pinewood software system, which is a $30 to $40 million savings. You know, we took out another $30 to $40 million out of our current tech stack with what George did and what the stores did with vendor pricing. And now we're starting to really impact our interest costs. Which obviously isn't part of SG and A, but it's a big part of our cost structure. And it's the third largest cost in our vehicle department. So I think that, where we ended up with the quarter, we're comfortable with. Our Q1 and Q4 typically is at the higher end of the range than our Q2 and Q3 are typically in the lower ends of the end of the range, primarily based on the fact that we have a fair amount of our business in the Snow Belt. Okay? So hopefully that helps you, Rajat.

Got it. No. Thank you. Appreciate it. I'll get back in queue.

Our next question comes from Kate Shane with Goldman Sachs. Please proceed with your question.

Good morning. This is Mark Jordan on for Kate McShane. Just thinking about the tariff on imported parts, how do you see that impacting your after-sales business? I guess, with respect to margins? And then would you expect to see some level of deferred maintenance as customers avoid some noncritical repairs?

Mark, thanks for your questions. I think we've thought through the after sales repercussions of higher tariffs. We're fortunate that most customers do need to repair their cars. And whether it's maintenance or whether it's hardline repair, that's a positive thing for us. So I think when you think about the parts versus labor equation, we did have a pretty good lift this quarter in terms of labor, and we're up over 57% margin, which was quite nice and a little higher than what we typically expected in our forecast running 55% to 56% over the last few quarters. But I really believe there is no big option to defer. Okay, especially when we in our aftersales businesses deal with affordability. So we're the same price as the Jiffy Lubes of the world and the AutoZones of the world. And we sell aftermarket parts, and we sell OEM parts. And as such, we want to keep those customers in the ecosystem. So I think the impact in the after-sales business, from tariffs, whatever they may end up being, is pretty minimal.

Great. And then one last follow-up. Just on capital allocation, share repurchase is obviously a bigger part of the mix in the quarter. It looks like it might be in the near term. But as we think about your acquired revenue targets, is the $2 billion to $4 billion still in the cards for the year?

Mark, this is Brian again. I think that we've specifically said that we're probably gonna be closer to $2 billion this year. And you can see it in our share buybacks at $105,060,000 about 2% of our float just in the quarter. That's a big amount of buybacks, and obviously that brings it down. In the prepared remarks, I did mention that it's $2 to $4 billion going forward. And then, again, we're still looking for, you know, that more major, meaningful acquisition at some point in our lives. And we believe that the industry can be consolidated where one plus one can truly equal three.

Thanks, Mark.

Our next question comes from Jeff Licht with Stephens. Please proceed with your question.

Congrats on a nice Q1. I was wondering if we could drill down a little bit on used specifically the value used. Starting off with, you know, GPU at $1,769, which is below your guidance. Was there some bit of just purging inventory? I know there's a lot of things you wanted to get right. If you could just talk about any of that, especially as we get into the tariff world. My perception is that your heritage of doing the value autos will actually maybe benefit a little bit. So any color there?

Yeah. I don't think there's any sub story to the $1,769. I will say this. It takes us typically about six months to gain initial track on teaching our new partners or new stores to sell and keep off-brand cars, as well as keep the older cars or these value auto cars. So Adam and the teams and our presidential teams and vice teams and field teams have done a darn nice job. Understanding that we don't wholesale cars. Okay? We keep everything to bring consumers into the ecosystem to lower price points or possibly as a cash buyer because as we know, value auto cars don't have a lot of financing. It's about 50% cash buyers and about 50% finance. Okay? So it's not that you're looking for buyers that aren't able to get financed or have poor credit. These are cash buyers that are very thrifty with very high demand cars that move quite quickly through the system. And our stores are getting it. Okay? And I'd send the challenge out to everyone that if you're not at 40%, okay, or better in terms of value auto sales, it's the one bucket that does not have an impact from lower SARs. Okay? Lower SAR from previous years. Okay. And core is now just starting to trickle in the 2021 and 2020 model years. Which is having a little bit of inventory impact. On our three to nine-year-old vehicle. It's important to remember that it's important to who Lithia is. All affordability levels, and most importantly, these value and core products are where we really shine. Okay? And, Jeff, I think you know this. The GPUs are somewhat similar. Okay? Important to remember.

And just a quick follow-up on your comment about it taking six months to get initial traction. I'm just curious, is that the stores you've acquired, say, over the last four or five years that really haven't just gotten up to speed on the Lithia heritage or were there some of your traditional, were some of the Lithia Great clarification. So if you recall in our previous calls, we bought so much bulk and the list of GPUs made everyone think that we were doing wonderful. So it's really hard to convince people that they should do more. So I really believe that it was about three to five quarters ago where people started to listen and go, wow. There's opportunities here. And it is mostly new cars and new businesses that are finally gaining the traction that we're really excited that we moved from a, what, a minus 5% used car same-store sales last quarter to basically flat. Okay? And those days of, you know, mid to high single digits are in our future. And I mean, we're really looking at a 5% more longer-term number or better in terms of used car sales, especially when you've got green cars and driveways that are bringing in 97% new customers, and it's truly limitless in who we can touch and find. Awesome. Congrats again, and look forward to talk to you in the next quarter. Thanks, Jeff.

Our next question comes from Douglas Dutton with Evercore. Please proceed with your question.

Morning, everyone. Maybe just going down the value chain here. With USR at nearly 18,000,000 units on an annualized basis over March and now into April, how are your dealers and your general managers dealing with the pre-buying from consumers? You know, as they're going to need to prepare for a potential hangover if the tariff situation extends into June or July or August. You know, what's the guidance there on some of the lumpiness that we might see after the sugar rush here?

Yeah. Yeah. To be fair, I mean, remember, we had a 17,000,000 SAR four months ago too. So a little extra lift is not a massive amount. I believe that we will have eighteen million SARS consistently. And if I believe I said that last quarter on this call that we could see a year where we have an eighteen million SAR. Now I do agree that if the tariffs stick at where they're sticking, we could see some lumpiness. Okay? But I think it's more of lumpiness in fall, not really lumpiness as we go through the summer season. I would also remind you of this. Okay? We have 50% of our cars that aren't affected by tariffs. Okay? Now if you're European heavy, you may have a bigger problem. Because Europeans don't have the same competitive pressures across their product line. Most of their specific products are pretty high demand, whether it's a M class or an AMG or GTS in Porsche. They're high demand. Are you following me? So I think that they've got price flexibility but their main product lines are what's gonna be impacted the most. The import manufacturers, from Asia, I believe, are hyper-competitive, and they're talking about how to freeze pricing or how to decontent cars. But I believe affordability will be there. So I believe whatever pull forward there may have been in the March, it's light. Okay, and shouldn't impact the future going forward on any relative scale.

Awesome. Thank you. And then just a quick follow-up here on your thoughts around incentives and the discipline there. You know, has there maybe been an opportunity to take some of those dollars off the hood? On your sales to move where you were previously had them in there to move the metal. Just given the fact that there was this sort of sudden surge of demand. Can you speak to that a little bit?

Sure. Sure, Doug. We did see a little bit of an increase in March in terms of GPU. But that is also pretty typical because we have quarter-end money. It was a couple hundred bucks higher than what we would have expected. In terms of incentives, as a dealer, we just sell for net price and sell for payment. So it's not big impacts to us. I would say this, that incentives are still quite low. So the manufacturers have a lot of ability to absorb some of those cost increases if they choose to. And we are seeing strengthening of that, especially when it comes to leasing. I think we're pushing almost 20% leasing again, which you know, on a pre-COVID number, we were in the low 20 percentile. So nice gains. I think it was 17.5% or something, but it was up a couple percentage points from last year, which is a good indication of strength of incentives, come in a form of lease and values or lease multiple factors, which is the equivalent interest rate on leases.

Thanks, team.

Thanks, Doug.

Our next question comes from Ron Dziedzko with Guggenheim. Please proceed with your question.

Yeah. Good morning, and thanks for taking my questions.

Hi, Ron. Hi, Bryan.

Maybe following up on Rajat's SG and A question. You mentioned in the back half you expect to drive seven basis points of monthly savings. Guess, first, is that all in SG and A and interest? And then what is like some of the low-hanging fruit or maybe it's not that low-hanging, but what are you pushing your managers on really to drive those improvements?

So yes, it includes the interest. And the primary areas that we're pushing are operational leaders is on personnel costs. Okay? In our model, when we look out five years, we're basically asking for a 10% to 15% total percentage reduction in terms of personnel costs. Today, it sits at about just under 40%, so we're looking at somewhere around a 4% to 6% reduction over the next five years. Okay? We don't want to make it a heart attack. We don't believe that we could do it today because there are technology productivity increases, customer self-service, and many other things that need to come into play to be able to activate that amount of change. Okay? But we do know that they believe it's in bite-sized amounts that they're not fearful of it. And as such, we believe in the second half of the year, we can begin to drive that down. Okay? That makes up about 50% of the improvement. The other 50% is truly leveraging our corporate costs as we don't need another Tina. We don't need another me at this stage. Right? Okay. But that's you know, you gain some scale on those types of things, and obviously, there's some vendor contracts that we believe are beneficial.

Yeah. No. That's super helpful color. And maybe just following up on one of those kind of ecosystem items. Pretty big step up in DFC originations this quarter. Anything that specifically changed because obviously your sales volumes weren't sequentially stronger than the fourth quarter, which was always seasonally strong. So just trying to get a sense of what drove the pretty material step up in originations.

Now, Ron, this is Brian again, and I probably should just let Chuck handle this. But I listen really good to Chuck and Tina, okay? And they've taught me well enough to know this. Our NIMs are increasing so nicely that it allows us the flexibility to scale our penetration rates without sacrificing credit quality. Okay? In simple terms, we were at 13.7% for the quarter. We even had a 14 pluser in there, which was great to see. April's looking pretty good as well. So it's really having that middle of the 400 to 600 basis points of NIM have the flexibility to scale when the credit opportunities are there with an ultimate end of year target exit rate of around 15% and an ultimate target of 20%.

Okay. No. That's super helpful. Thanks for taking my questions.

Our next question comes from Daniela Haizen with Morgan Stanley. Please proceed with your question.

Thanks. Brian, just to squeeze one in on parts and service. You and after sales, you spoke to room for uplift with relatively inelastic demand. What does capacity and tech availability there look like? And how does that continue to grow in the segment? Thanks.

Daniela, thanks for the question, and congratulations on taking us over now, which is great. We look forward to talking a little more deeply. In terms of after sales demand, we're quite fortunate that even though there's not a lot of units in operation out there, we do price our products within all ranges of the marketplace. So our affordability is quite cheap. So when we think about our aftersales business, it's truly about providing individual experiences that create optionality for each and every customer. And I think as an organization that has been able to do things the same way, we're now starting to think about individuality. Why I'm talking about that is because when you think about what's coming into our shop, we can have a lot more consumers coming in. Today, our stall utilization is somewhere south of about 50%. Meaning, in theory, we could double our capacity by opening extended hours or moving to double shifts or triple shifts. Many of our stores have moved to. Okay? If we think about our staffing levels of our technicians, we're sitting really nicely, in terms of that as well. We grow our own technicians most of the time. And, you know, today, I think the biggest mindset is we're filling our shops with warranty work, and we should be filling it with warranty and customer pay work. Okay? So there is a mindset in our shops that build their production plans and their production plan calls for twelve hundred hours and they got an extra hundred hours that's coming from warranty. And they take it out of customer pay. We can't do that. Okay? We need our aftersales leaders motivated to take the work and improve the productivity of their technicians. Okay? It's there today. That productivity level is there today, with people ready to turn wrenches. We just gotta open up the funnel. Okay? And it's starting to matriculate through, and Adam and our teams have been working on that, and I'll continue on that pathway over the coming quarters.

Thanks, Brian.

Thanks, Daniela.

Our next question is from Bret Jordan with Jefferies. Please proceed with your question.

Hey, good morning. I had a question on the tariffs. When you think about customer pay, obviously, and you've got the 25% auto bucket, but then you've got the metals and the reciprocals. Could you help us with the expected growth rate in the customer pay business just tied to inflation and parts pricing?

I think this is Brian. I would indicate that we believe that customer pay should be able to grow at low to mid-single digits in the short and midterm. And long term, it should be able to grow mid to high single digits. Okay? That's where we were pre-COVID, and it's really just a matter of inspiring our after-sales leaders to be able to do that. I don't know if you recall, but we haven't been the LPG that was expanded into the departmental leaders and they're fighting hard to be able to grow their RO their RO count as well as their hour count to be able to win the LPG award, which is our Lithia Partners group, which instills loyalty, potential, and growth. So I mean, with that, outside that, we've gotta be more competitive than what our, you know, than what our peers are. And ultimately providing that optionality and that individualistic experience to our consumers will get us there.

Right. Wouldn't just the price of the part get you to a low to mid-single digit growth if they say, chassis parts are in the auto part bucket? So that's 25 points of tariff. Wouldn't just the price of the tariff alone get you growth? Was this, I guess, is the question. What excess growth do we get out of possibly?

Possibly. But, again, I mean, we're assuming that the content of the car, that's 50% of it is domestically made, so that's not gonna be impacted by tariffs. But, yeah, there could be two or 3%. Maybe we'll look a little deeper into that. I think being downstream, we just try to respond to the environment and be proactive with our specific manufacturers or region.

Okay. And then I guess on regions, you'd you'd called out the South Central and Southeastern region being more profitable for a while now. Could you give us a feeling sort of what's a regional EBIT of the high profit region versus maybe a low profit region? What's the what's the spread?

Sure. And I think it's interesting that when we look at the regional performance today, we're encouraged that the gross profit in the Northwest and Southwest, which were the two weakest regions over the last two years, are now the two strongest regions. Okay? So, you know, we're quite fortunate when we look at that. On a same-store basis, though, despite that, the Southeast and South Central are both quite strong. But it's not showing through in gross profit. So I don't know if that reads through to the marketplace. When we think about profitability, true net profitability, again, the Southeast and South Central are running at approximately double the net profit per rep to revenue of what our Southwest and Northwest regions are. Okay? And that is not a lithium anomaly. That is a fact of life. Okay? And it's primarily because of the regulatory environment and the fact that in the red states, you're able to have doc fees that are excessive that have no cost really attached to them other than the general manager. Okay, which is an automatic $500 to $1,000 additional profit that drops to the bottom line, okay, creating that delta. Okay.

Thank you. Yep. Great.

Our next question comes from Colin Langan with Wells Fargo. Please proceed with your question.

Oh, thanks for taking my question. Just to clarify, I mean, the guidance still is for mid-single growth in new vehicle. Is that incorporating any tax? It doesn't sound like it. I mean, is that assuming that the sorry, the tariffs does that assume tariffs sort of moderate as we get into the second half of the year? And if they don't, what kind of downside risk should we be thinking about?

We're pretty comfortable with the low to mid-single digits as our target throughout the year. And we believe that because of our exposure, we should sit pretty nicely in returns in terms of what happens with tariffs. I mean, no matter what happens, you still have a competitive market that has to deal with affordability and has to deal with their production schedule. So with that, we believe that we're sitting quite nicely in terms of being able to respond to the market and continue to grow our new car business.

And that would be based on like a SAR for the market would be in the $14.15 range if tariffs stay all year, and you would just do significantly outperform that market? Is that what you're getting at?

I don't believe that we'll see, I don't believe it'll be in the 14 to 15 range. I believe it'll be in the 16 to 17 range, somewhere in that range or high teens. You know, that's probably the low end of the marketplace. I mean, we just saw an 18. So you're gonna end up with a year if you get a couple months of 1,718,000,000 SARs even if you had a 14 or 15 in there, you're gonna end up in a 16 to 16 and a half million range.

Okay. Then if I look in the sales performance in the quarter, I think same stores was 3.6% on new. I believe US sales were around five, and I think retail was even a little better than that. Is that geographic mix that's driving the slight underperformance versus the market?

It is. It is. As I mentioned, the Southwest and Northwest were on the lower end of the revenue same-store sales growth. But it was also the strongest gross profit area. So, you know, and that's affecting that's being affected by the fact that it's lower same-store revenue. Okay? I mean, we were up let's see here. I'll give you some color. I'll blend these. Northwest, Southwest was around 8% in revenue growth. Okay? It was on a same-store basis. It was at 3% gross profit growth. Okay? In comparison, in contrast, the Southeast and South Central was about a 14 to 15% revenue top line growth. Whereas let me look at this. Southeast was down 10% in same-store gross profit in the Southeast, South Central. Okay? So some different dynamics happening. I know if it's because we have a higher propensity of one brand, but it's a good sign that things are starting to balance out in the country and that our Western exposure that was a little weaker is now starting to strengthen.

Got it. Alright. Thanks for taking my questions.

You bet. Thanks, Colin.

Have reached the end of the question and answer session. I'd now like to turn the call back over to Bryan DeBoer for closing comments.

Thanks, Rob, and thank you, everyone, for joining us today. We look forward to seeing you all on the Lithia Driveway second quarter call in July. Have a great spring. Bye-bye all.

This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.