Share price crashes as car dealer Lookers issues profit warning
Lookers suffered a sharp drop in its share price this morning as a profit warning fuelled investor concerns just a month after the car dealership giant revealed it was being investigated by the UK’s financial watchdog over its sales processes.
Shares plummeted 25 per cent in early morning trading to roughly 33p after the firm said that half-year profits would be lower than it had expected.
The London-listed motor retailer said this morning that the board’s current outlook for underlying profit before tax for the full year is now below its previous expectations, as it blamed a swathe of industry challenges and wider political turmoil for its troubles.
Read more: Shares dive as FCA launches probe into Lookers
Lookers also said that underlying profits for the six months to 30 June 2019 are expected to be roughly £32m, falling from £43m in the same period last year.
Citing a slowdown in the second quarter of 2019, the firm blamed weaker demand and a consequent hit to margins in the used car market, where it saw registrations slump over the six month period.
“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,” the firm said in a trading update this morning.
It 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.”
Read more: UK car slump hits car deader Lookers
Over the last 12 months the group’s share price has crashed by 57 per cent from 107p to a close of 46p last night.
Russ Mould, investment director at 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.”
He added: “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.”
In June shares plummeted to a seven-year low after it emerged that the Financial Conduct Authority (FCA) was investigation the firm for its sales processes over the last three years.
Today Lookers said that it continues to co-operate fully with the investigation.