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A tough retail market looks set to impact second-half earnings for autoparts and accessories group Bapcor (ASX: BAP) with the news compounding a tough week for the company as investors pushed its shares almost 29 per cent lower in early trading today.
The shares plummeted from the opening after a two-day trading halt that coincided with an announcement on Tuesday that Paul Dumbrell had pulled out of plans to step in as CEO – a move that would have seen the industry veteran take the reins from yesterday.
Compounding that announcement was a trading update that revealed a retreat in consumer spending has hit the company’s earnings performance in the current half-year.
The company, which operates the Autobarn and Autopro retail chains, says it expects its pro-forma net profit after tax to be below the $54.2 million recorded in the first half.
That has led Bapcor to forecast pro-forma NPAT of between $93 million and $97 million for the FY24 full year, which is down from $125.3 million in FY23.
Bapcor has revealed its retail division has suffered the most due to “weak consumer confidence and lower levels of discretionary spending”.
Revenue for the nine months to 31 March this year from its retail arm is down 2.3 per cent, making it the only division to be in negative territory for the period.
Trade and specialist wholesale have recorded an increase of 1.9 per cent and 3.3 per cent respectively, while the New Zealand division is up only 1.1 per cent.
But Bapcor reveals that competitive pricing has hit volumes and margins in its wholesale business.
Higher interest costs also have added to an underperformance of the company’s “Better than Before” strategy to drive sales growth as overhead increases have outweighed any gains in revenue achieved.
“Trading conditions since our last update to the market have remained challenging as consumers continue to pull back on spending, primarily impacting our Retail business,” says Bapcor’s CEO Mark Bernhard.
“Pleasingly, our Trade and Specialist Networks businesses have continued to grow sales, on what was a strong prior year comparative.”
The company notes that May and June are “historically the strongest trading months for the Trade and New Zealand businesses”.
Bapcor adds that the weaker performance by the retail division may lead to an impairment of tangible and intangible assets, although this has yet to be confirmed.
“Management is actively working to reduce the cost base to be more appropriate for the current trading environment,” says the company.
Bapcor remains confident in the long-term outlook for the group which the company says is reflected in the “resilience of the automotive aftermarket industry” led by sale growth for it two largest segments - Trade and Specialist Networks.
Today’s earnings update has combines with Bapcor’s ongoing leadership woes which have been exacerbated by Dumbrell’s decision to pass up the CEO appointment announced earlier this year.
Bernhard has been interim CEO since the departure of former CEO Noel Meehan in February.
Company chair Margie Haseltine is also set to depart later this year after announcing she does not plan to stand for re-election at the 2024 AGM.
Bapcor is also on the hunt for a chief financial officer following the appointment of George Saoud as interim CFO last month to replace Stefan Camphausen, whose resignation was announced on 17 January.
Bapcor shares recovered some lost ground by the afternoon, closing at $4.39 – down 24 per cent.
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