Automotive parts company LKQ (NASDAQ:LKQ) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 6.5% year on year to $3.46 billion. Its non-GAAP profit of $0.79 per share was in line with analysts’ consensus estimates.
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LKQ (LKQ) Q1 CY2025 Highlights:
- Revenue: $3.46 billion vs analyst estimates of $3.61 billion (6.5% year-on-year decline, 4.1% miss)
- Adjusted EPS: $0.79 vs analyst estimates of $0.78 (in line)
- Adjusted EBITDA: $404 million vs analyst estimates of $396.2 million (11.7% margin, 2% beat)
- Management reiterated its full-year Adjusted EPS guidance of $3.55 at the midpoint
- EBITDA guidance for the full year is $825 million at the midpoint, below analyst estimates of $1.73 billion
- Operating Margin: 8.3%, in line with the same quarter last year
- Free Cash Flow was -$57 million, down from $187 million in the same quarter last year
- Organic Revenue fell 4.1% year on year (-1.1% in the same quarter last year)
- Market Capitalization: $10.35 billion
StockStory’s Take
LKQ’s first quarter results reflected ongoing headwinds in the automotive aftermarket parts sector, shaped primarily by reduced repairable claims in North America, softer consumer sentiment in specialty segments, and a mild winter in Europe. Management pointed to the company’s ability to gain market share against a backdrop of declining industry demand, with CEO Justin Jude highlighting, “We have outperformed the repairable claims count growth by over 400 basis points per year, and Q1 was 570 bps better.”
Looking forward, the leadership team maintained its full-year adjusted EPS guidance, while warning that uncertainties around tariffs and consumer behavior could impact performance throughout the year. CFO Rick Galloway noted that LKQ has historically managed to pass tariff costs through to customers and is actively working with suppliers to mitigate impacts. Still, leadership acknowledged the complexity and volatility of the current tariff environment, emphasizing the company’s focus on simplifying operations and maintaining cost discipline.
Key Insights from Management’s Remarks
LKQ’s management cited market share gains and operational streamlining as key to offsetting broad industry weakness and external pressures in Q1. The following points summarize the most important drivers and actions discussed:
- North America Market Share Gains: Despite a decline in overall North American repairable claims, LKQ outperformed the industry by increasing its share, aided by diversified products and service offerings, especially in calibration, diagnostics, and Canadian hard parts.
- European Simplification Efforts: The ongoing SKU rationalization project in Europe removed 17,000 low-volume SKUs and increased private label penetration, with over 60% of brands reviewed and a target of reaching 30% private label sales by 2030. Management reported no negative impact on fulfillment rates or revenue from these changes.
- Specialty Segment Pressure: The specialty business, including RV and SEMA products, continued to see soft demand due to weaker consumer sentiment and anticipated tariff-related pricing pressures. Management expects these conditions to persist through the year.
- Tariff Mitigation Strategies: LKQ formed an internal tariff task force to address both direct and indirect exposure, working on vendor cost concessions, supply chain optimization, and selective price increases. Less than 10% of global cost of goods sold is exposed directly, while indirect exposure accounts for another 20%.
- Portfolio Streamlining and Capital Allocation: The company divested two non-core operations, reinforced its capital allocation approach with share repurchases and dividends, and maintained a moratorium on large acquisitions, focusing instead on small, synergistic tuck-ins.
Drivers of Future Performance
Management’s outlook for the remainder of the year emphasizes navigating tariff-related uncertainty, maintaining market share gains, and advancing operational simplification, while acknowledging persistent consumer and macroeconomic challenges.
- Tariff Uncertainty and Mitigation: The evolving tariff landscape is likely to impact both costs and pricing. LKQ’s ability to pass on price increases and offset supplier cost pressures will be critical for sustaining margins.
- Operational Simplification Initiatives: Ongoing SKU rationalization, increased private label penetration, and productivity improvements in Europe are expected to support profitability, provided they do not negatively affect revenue or service levels.
- Consumer Sentiment and Industry Demand: Continued weakness in discretionary spending, particularly in specialty segments, and the pace of recovery in repairable claims will influence revenue trajectories for the remainder of the year.
Top Analyst Questions
- Scott Stember (ROTHMKM) pressed on trends in North American repairable claims and used car pricing. CEO Justin Jude indicated early signs of used car price stabilization and anticipated that tariff-driven price increases could benefit the industry.
- Craig Kennison (Baird) questioned the impact of SKU rationalization in Europe, to which management confirmed no negative effect on fulfillment or revenue, emphasizing the removal of low-volume products.
- Jash Patwa (JPMorgan) asked about pricing strategy and the ability to pass through tariff costs. Management explained that past tariff increases have been successfully passed to customers and outlined the complexity of direct and indirect tariff exposures.
- Gary Prestopino (Barrington Research) sought details on SKU rationalization targets. Management restated the goal of reducing SKUs from 750,000 to about 600,000 by 2027 and reaching 30% private label share in Europe by 2030.
- Bret Jordan (Jefferies) inquired about the impact of tariffs on LKQ’s pricing relative to original equipment manufacturers (OEMs), with management expecting the competitive pricing gap to persist, pending OEM responses to tariff changes.
Catalysts in Upcoming Quarters
Looking ahead, the StockStory team will be monitoring (1) the pace and success of tariff mitigation strategies and the company’s ability to maintain margin stability, (2) further progress in European operational simplification and SKU rationalization, and (3) signs of stabilization or improvement in North American repairable claims and specialty segment demand. The evolution of the regulatory environment and consumer sentiment will also be key factors to watch.
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