Car sales firm Lookers issues profit warning amid political and economic uncertainty
Car sales firm Lookers has issued a profit warning just a week after if chief financial officer stepped down.
The Altrincham based firm said a trading update that underlying profit before tax for the first half fell by £11m be approximately £32m compared to the same period last year.
The firm has blamed uncertain market conditions and a decline in the new car market.
Last week it was announced that Robin Gregson is stepping down after 10 years in the role.
And last month shares in Lookers fell by almost a quarter after it revealed it is to be investigated by the Financial Conduct Authority over its sales practices.
The firm said that while the period had started satisfactorily the second-quarter had proved “increasingly more challenging” due to a decline in new UK car registrations, weaker demand and margin pressure in the used car market.
The company said it expects the challenging market conditions to continue into its second half, exacerbated by “continued weakness in consumer confidence” and political and economic uncertainty.
As a result the outlook for underlying pre-tax profits for the full year is now below its previous expectations.
The news sent the share price in the firm tumbling by more than 26% to 34.2p.
The statement to the Stock Market said: “Notwithstanding the more challenging market conditions in H1, particularly in Q2, the group has delivered a robust financial performance underpinned by maintaining its strategy of strong operational execution and focus on the right brands in the right locations.
“The board now expects that the more recent challenging conditions are likely to continue into H2, exacerbated by continued weakness in consumer confidence in light of wider political and economic uncertainty, and further pressure on used car margins.
“There is also the possibility of new vehicle supply restrictions as new emissions regulations come into force during Q3. In addition, the retail sector cost inflation experienced in H1 is likely to continue to impact earnings during the second half of the year.
“As a result of the above factors, the board’s current outlook for underlying profit before tax for the full year is now below its previous expectations.”
Russ Mould from AJ Bell said: “The worry for investors in car dealership Lookers is that the severe problems being faced in the new car market are now spreading to the used car market where margins are under big pressure.
“Second-hand vehicles have seen prices enjoy a strong run in recent years helping to compensate for the difficulties seen in other parts of the market. It now looks like that trend has gone into reverse.
“Lookers has had engine trouble for a while with a series of downgrades earlier this year and it also faces an FCA probe over its sales practices. The company hints that it will incur some material costs relating to this process.
“While this investigation is hanging over Lookers, the shares could at best be stuck in neutral for a while.
“Until recently the company actually had a decent track record, but its reputation is now in tatters and will require a big repair job.
“Investors will get the opportunity to kick the tyres on the business at its first half results on 14 August with management under a lot of pressure to get its operations back on the right road.”