LKQ's Q1 2025: Contradictions Uncovered on SKU Strategy, Private Labels, and Economic Impacts

Impact of SKU rationalization on revenue, private label penetration and gross margins, tariff impact on business costs, private label penetration targets, and impact of economic factors on repairable claims are the key contradictions discussed in LKQ's latest 2025Q1 earnings call.



North American Revenue Decline and Market Share Gains:
- North America's organic revenue fell by 4.1% per day, with a 10% decline in repairable claims.
- Market share gains were observed, with a 570 bps outperformance against a low demand environment compared to the previous year.
- The decline was primarily due to a decrease in used car pricing and rising insurance premiums, but market share gains were achieved through diversified product offerings and targeted actions to enhance market penetration.

Impact of Tariffs and Strategic Positioning:
- LKQ recognized less than 15% of its U.S. business's cost of goods sold are directly imported, with Taiwan being a significant source.
- The company established a global task force to navigate tariff impacts, aiming to mitigate costs through vendor partnerships and supply chain optimization.
- Historically, tariffs have benefited the industry by raising part prices and used car values, which could potentially lead to more cars being repaired.

European Operations and SKU Rationalization:
- Europe's organic revenue declined by 1.8% per day compared to Q1 2024, with a two-year stack growth of 2.6%.
- SKU rationalization efforts led to a reduction of over 17,000 SKUs and a 20 basis point increase in private label penetration.
- The decline in revenue was attributed to competitive pricing in some markets and consumer confidence, while SKU reduction aims to simplify operations and reduce complexity.

Specialty Segment Challenges and Consumer Sentiment:
- Specialty's organic revenue declined by 4.9% on a per-day basis, with soft demand in RV and SEMA spaces affecting the business.
- Economic instability from tariffs and consumer sentiment negatively impacted discretionary spending, contributing to declining demand.
- The company anticipates ongoing uncertainty and plans to maintain discretionary pricing power despite tariff pressures.