Bapcor (ASX:BAP), the auto parts retailer and wholesaler, is grappling with a challenging beginning to the 2023-24 fiscal year due to a slowdown in consumer demand, impacting its trading performance.
It appears that even car enthusiasts are refraining from splurging on vehicle parts and accessories, as indicated during the annual meeting held on Tuesday. Factors such as rising interest costs for mortgages and credit, increased prices for petrol, energy, and food, have compelled Bapcor's customers to prioritise other expenses over car-related purchases.
During the annual meeting, shareholders were informed that the net profit after tax for 2023-24 "falls short of our initial expectations." CEO Noel Meehan stated that the shortfall amounts to "mid-single digit millions of dollars."
Year-to-date revenue growth has also slowed down, reaching only a "low-single digit percentage rate" compared to the previous year.
Meehan attributed the weak start to the new financial year to "macro headwinds," which have resulted in a more moderate growth profile in the Trade and Wholesale markets and a further deterioration in the Retail sector. He added, "These challenges are compounded by increased short-term margin pressures, cost inflation, external factors such as rising payroll taxes, investments in capability, depreciation and amortization costs, and higher interest."
Despite the challenging trading environment, Bapcor anticipates a solid underlying performance in FY24, contingent on market conditions, and expects its revamp program, "Better than Before," to achieve its targeted FY24 goals.
Meehan emphasised the company's optimistic outlook for the long-term, citing strong demand supported by factors such as population growth and increased mileage from an aging car fleet.
Bapcor's performance in the first half of 2022-23 was robust, with an 11.2% increase in first-half revenue to $1 billion, a statutory net profit after tax of $62 million, and a statutory EBITDA of $146.3 million.
The key question now is whether any shortfall will impact the dividend. Bapcor had increased its interim dividend for 2022-23 to 10.5 cents per share from 10 cents. The company's half-year results next February will reveal whether this trend continues.
