Lithia & Driveway Stock After Q3 Earnings: Buy, Hold or Sell?

Lithia & DrivewayLAD faces mounting challenges as declining new-vehicle profitability, weaker finance and insurance (F&I) performance and rising costs weigh on its operations. Elevated debt and intense competition further complicate efforts to protect margins and sustain earnings growth.

Shares of LAD are down 8.7% over the past year against the industry's 2.4% rise.

Image Source: Zacks Investment Research

Let's examine the factors weighing on LAD's investment outlook.

LAD's New-Vehicle and F&I Weakness Weighs on Profit

In the third quarter of 2026, LAD's same-store new-vehicle revenues declined 2.6%, while gross profit fell 8.5% and gross profit per unit dropped 6%. For the first nine months, new-vehicle gross profit declined 11.8%. Same-store F&I revenues also fell 8.1% in the quarter and 5.7% year to date, while F&I gross profit per retail unit declined 4.7%. Continued weakness in these businesses could constrain overall dealership profitability despite stronger used-vehicle margins.

LAD's Rising Expenses Limit Operating Leverage

LAD's adjusted selling, general and administrative (SG&A) expenses rose to 68.8% of gross profit in the third quarter of 2026 from 67.9% a year earlier. For the first nine months, the ratio increased to 69.6% from 67.9%. Achieving management's medium-term target of 60-65% requires substantial efficiency gains. Delays in controlling expenses could limit margin improvement and operating leverage.

LAD's Debt and Competition Pressure Flexibility

As of Sept. 30, 2026, LAD's total debt increased to $16.26 billion from $14.82 billion at the end of 2025, while net debt rose to $4.99 billion from $4.86 billion. Its long-term debt-to-capitalization ratio of 59.1% exceeds the industry average of 25.5%, increasing exposure to interest rate fluctuations and limiting financial flexibility.

Competition from traditional dealerships, online retailers and financial institutions also pressures pricing and margins. In the third quarter of 2026, same-store revenues declined 1.4%, with new-vehicle units falling 2.7% and used retail units declining 3.2%. Economic uncertainty, financing costs and affordability challenges could further constrain sales and profitability.

LAD's weakening new-vehicle and F&I performance, rising expenses, elevated debt and intense competition threaten profitability and financial flexibility. Until the company demonstrates sustained improvement in dealership earnings and cost control, these challenges could continue to weigh on its performance. As such, investors should consider selling the stock.