BELEAGUERED retail group Lookers is expecting a 26 per cent pre-tax profit drop to £32m, it said today.
In a pre-close trading update, it said trading for the first quarter to March 31 ‘was positive, underpinned by outperformance of the UK new car market and growth in both turnover and gross profit in used vehicles and aftersales.’
However, it said that although things started ‘satisfactorily’, they were ‘increasingly more challenging’ through the second quarter as the decline in the new car market continued, with registrations falling by 4.6 per cent, after the first quarter’s drop of 2.4 per cent, compared against the same periods last year.
It added that ‘weaker demand and the resulting margin pressure in the used car market has significantly increased, notably during the month of June in which we took a disciplined approach to managing stock.’
The group – which last month revealed that the Financial Conduct Authority was looking into its sales processes – said it had ‘continued to experience cost inflation pressures’, and underlying profit before tax for the first half was therefore expected to be about £32m compared with £43m for the same period last year.
It reported a ‘strong’ balance sheet, having agreed a new £250m revolving credit facility to March 2022. As of December 31, it had net assets of £399m, including freehold and long leasehold property of £309m.
But looking ahead, the board said it was expecting ‘the more recent challenging conditions . . . to continue into H2’, made worse by weak consumer confidence caused by ‘wider political and economic uncertainty’ as well as ‘further pressure on used car margins.’
The update – issued today ahead of Lookers’ half-year results to 30 June, which will be released on August 14 – added: ‘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.’