Lookers warns on profits as market turns more challenging
Motor retailer and after-sales service provider Lookers reported “increasingly more challenging” trading on Friday, as the positive start to the year it experiences turned more difficult in the most recent quarter ended 30 June.
The London-listed firm had reported in its annual general meeting statement that trading for the three months ended 31 March was positive, underpinned by outperformance of the UK new car market and growth in both turnover and gross profit in used vehicles and aftersales.
It said on Friday that, while the period began satisfactorily, trading during the three months ended 30 June, against strong comparatives, had proved “increasingly more challenging”.
During the second quarter, the UK new car market continued to decline with registrations down 4.6% year-on-year.
In addition, Lookers said weaker demand and the resulting margin pressure in the used car market had “significantly increased”, notably during the month of June in which it took a disciplined approach to managing stock.
Throughout the first half, and in line with general retail sector trends, the group said it had continued to experience cost inflation pressures.
As a result, underlying profit before tax for the first half was expected to be approximately £32m, compared to £43m in the comparable period last year.
As it announced on 25 June, the group said it had been informed by the Financial Conduct Authority that it intended to carry out an investigation into sales processes between 1 January 2016 and 13 June 2019.
The group reiterated on Friday that it was continuing to cooperate fully with the investigation, and would provide a further update at the interims on the level of investment required to support its improvement plan and other costs associated with this process.
Lookers said its balance sheet remained “strong”, explaining that in December it agreed a new, fully committed £250m revolving credit facility with a term to March 2022.
At 31 December, the company had net assets of £399m, including freehold and long leasehold property of £309m at net book value.
“Notwithstanding the more challenging market conditions in the first half, particularly in the second quarter, 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 company said in its statement.
“The board now expects that the more recent challenging conditions are likely to continue into the second half, 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 the third quarter.”
In addition, Lookers said the retail sector cost inflation experienced in the first half was likely to continue to impact earnings during the second half of the year.
As a result of those factors, the directors said their current outlook for underlying profit before tax for the full year was below its previous expectations.
“Notwithstanding these short-term challenges, the board continues to believe that over the long term the group is extremely well positioned to take advantage of the many opportunities ahead as the sector continues to develop, underpinned by the group's strong balance sheet and cash generation.”
Lookers said it intended to report its half year results on 14 August.