Lending Association

Bapcor faces dividend dilemma

Automotive parts retailer and wholesaler, Bapcor (ASX:BAP), might struggle to maintain its interim dividend at 10.5 cents a share if its weak update for the half-year to December turns out to be accurate.

The company informed the market in a trading update on Monday that, despite a 2% rise in revenue, it now expects proforma first-half net after-tax profit to be in the range of $53 to $54 million. This represents a 14% drop from the revenue of just over $1 billion for the half-year and could lead the board to consider trimming dividends.

The company attributed the downturn in spending at its retail arm to “weaker consumer confidence,” despite experiencing “stronger trading in our Trade and Wholesale businesses.”

“Bapcor’s Trade and Wholesale businesses continued to show positive growth in both sales and earnings in 1H24, with Revenue up 3% and EBITDA up 4% to 5%,” the company explained in Monday’s statement.

“Bapcor said its retail saw sales decline by 3% and EBITDA by approximately 11% to 14%.”

The Retail segment was negatively impacted by a decline in consumer confidence, which reduced discretionary spending, as well as lower fitment and installation volumes in some categories such as bull bars and roof racks.

“In addition, finance costs increased by $7 million (to $19 million) compared to the prior year, largely due to higher interest rates.”

As a result of the downturn in earnings, the company said it would be looking for extra savings on top of the $7 to $10 million it expects to extract from its continuing Better than Before program. It said it was looking for new savings at an annual rate of $2 million in the second half.

“Management took a number of actions in 1H24 to address both the lower than expected sales volumes and cost inflation, which will deliver further savings in 2H24. Given the prevailing macroeconomic challenges and current cost of doing business inflation, Bapcor will implement additional cost-saving initiatives in 2H24 while maintaining best-of-class customer service,” the company said.