Despite improved revenue figures, Medford-based auto retailer Lithia Motors saw a decline in earnings in the second quarter compared to last year, falling short of analysts' predictions.

Despite improved revenue figures, Medford-based auto retailer Lithia Motors saw a decline in earnings in the second quarter compared to last year, falling short of analysts' predictions.

Lithia Motors said Thursday revenue swelled to $885.1 million during the second quarter with net earnings of $7.94 million, or 38 cents a share, down 33 percent from $11.9 million, or 56 cents a share, for the same period in 2006. Income from continuing operations declined 11.7 percent to $10.7 million, or 50 cents a share, compared with $12.1 million, or 57 cents a share, a year earlier.

Analysts polled by Thomson Financial had forecast, on average, a per-share profit of 54 cents on revenue of $887 million.

Lithia will launch a new stand-alone used car venture, known as L2, in Loveland, Colo., in early August and follow later this year with two more in Amarillo and Lubbock, Texas.

Lithia Chairman and Chief Executive Officer Sid DeBoer anticipates L2 stores will turn a profit after their first year.

"The inventory can be purchased from any location," DeBoer said. "It's a truly 'clicks-and-bricks' model. We'll buy and sell and it will be the first place for customers to sell. There are no barriers to entry and unlimited growth potential. It provides a higher return on investment than our current model."

Lithia expects full-year 2007 earnings from continuing operations of $1.60 to $1.80 a share, assuming a steady pace of acquisitions and dispositions.

The company plans to sell five dealerships primarily selling domestic brands, and a body shop in metropolitan markets in Northern California and Washington in the near future.

"Generally our domestic brands do better in rural areas," said Lithia Chief Financial Officer Jeff DeBoer. "Bedroom community commuters don't drive big Dodge Ram pickups; they prefer cars and generally imports."

Lithia bought most of its metro market stores between 2000 and 2003 and today 90 percent of its stores are in nonmetro areas.

"We haven't bought any domestic stores in metro areas in three years," DeBoer said. "It was never a big focus and we didn't continue with that strategy once we saw the trends developing."

Lithia reported same-store sales growth of 4.6 percent in the quarter, following 8 percent growth in the second quarter of 2006.

Total sales grew 11 percent in the second quarter driven by parts and service sales and revenues from acquisitions made in the past 12 months. For the six-month period ending June 30, total sales increased 10 percent to $1.66 billion, up from $1.51 billion half way through last year. New vehicle sales increased 9 percent, used vehicle sales increased 9 percent, while finance and insurance components increased 8 percent with parts and service sales increasing 20 percent.

Reach reporter Greg Stiles at 776-4463 or at business@mailtribune.com