In a trading update for the six months ended 30 June, the group said that while the period had started “satisfactorily” with positive first-quarter trading, its 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.
As a result, Lookers said it expected its underlying pre-tax profit for the first half to be around £32mln compared to £43mln a year ago.
The year ahead didn’t much positivity either, with the company saying it expected the challenging market conditions to continue into its second half, exacerbated by “continued weakness in consumer confidence” and political and economic uncertainty, which would add further pressure to used car margins.
There was also the looming issue of an investigation by the Financial Conduct Authority (FCA) into the group’s sales processes between 1 January 2016 to 13 June 2019.
Ultimately, the group said its outlook for underlying pre-tax profits for the full year was now below its previous expectations.
The glum news sent the share price into a spin in late-morning trading, tumbling 20.4% to 36.9p.
House broker deflates with downgrade
In a note, analysts at Lookers ‘house’ broker Peel Hunt downgraded the stock ton ‘hold’ from ‘buy’ and slashed their target price to 45p from 150p in the wake of the profit warning.
The broker said that the shares were “unlikely to move forward” until the FCA investigation had been concluded.
Analysts also cut their full-year profit forecasts to £38.7mln from £53.1mln previously, saying that the change to the Brexit deadline to 31 October had the potential to be “highly disruptive” for the group.
Reputation “in tatters”
Commenting on the update, AJ Bell investment director Russ Mould said that while Lookers had had a decent track record until recently, its reputation was now “in tatters” and would require a big repair job to remedy the damage.
He added that investors would get a better look at the company’s health at its first half results on 14 August, with management likely to be under “a lot of pressure to get its operations back on the right road”.
--Adds analyst comment and updates share price--