Vertu Motors says its new car sales are outperforming the national market but margins and gross profit per unit have suffered due to the strive to hit manufacturer targets.
In a trading statement for today's AGM, the national car dealer group reported trading in the four months to June 30 has delivered strong growth across all areas of the business.
Its new car volumes in the period were 13.5% up, compared with a 11.9% growth in the whole UK new car market.
"The key drivers of this growth are an exchange rate environment which favours UK imports and a favourable UK consumer appetite in response to attractive product and finance offers, resulting from the overcapacity faced by European manufacturers and weak demand from Continental European new car markets," said chairman Paul Williams (pictured, right, with AM editor Jeremy Bennett) in a statement to London Stock Exchange.
Although outperforming the market in volume, Williams said Vertu's like-for-like new vehicle margins and gross profit per unit declined as a consequence of driving volume to hit manufacturer targets.
"All such manufacturer targets were achieved in the period, which included the March plate change month, at a high level and the group has continued to increase like-for-like new vehicle gross profit during the period capitalising on the higher volumes."
Fleet car sales increased 12% in the period, compared to a UK market that rose 10.1%, and group commercial vehicle sales were up 26.9% again 11.7% for the UK.
"This continues the trends of recent periods whereby the group is exploiting its expertise and depth of capability in both car fleet and commercial vehicles sales," said Williams.
Used vehicle sales grew on a like-for-like basis by 13.5% during the period and like-for-like margins and gross profit per unit also increased as strong pricing disciplines were maintained.
Williams said Vertu Motors' growth in used car volumes and profits in the underperforming dealerships acquired in prior periods are building the group's underlying profitability as these businesses are turned around, and the group's used car marketing strategy, which is focused in particular on the bristolstreet.co.uk and macklinmotors.co.uk websites, is improving its market share in used vehicles.
In June 2014 the group's websites generated more website visits than any other franchised dealer in the UK (source: Hitwise UK), and this is helping the group to increase its market share.
In aftersales it increased like-for-like sales, gross profits and net profits, Williams said, and in the key area of vehicle servicing like-for-like revenues grew by 5.1% and like-for-like margins improved following better utilisation and efficiency.
Total revenues in the four-month period grew by 34.8% with like-for-like revenues up by 16.4%. Total gross profit increased by 28.4% reflecting the impact of higher volumes of vehicles sold and acquisitions with like-for-like gross profit increasing by 9.9%.
Overall gross margins fell both as a result of the change in sales mix, shifting to a higher proportion of lower margin vehicle sales, and due to the lower margins achieved on new vehicles.
"Importantly, the group's operating expenses as a percentage of sales have continued to decline in the period as the group's focus on cost control has remained at the fore," Williams added.
He said Vertu's the trading performance for the year ending February 28 2015 will be ahead of current market expectations, and added that the board remains confident that the group is well placed to maximise the opportunity for profitable growth both from the turnaround in profitability of recent acquisitions and from favourable market conditions.
Williams is set to retire at the end of 2014, to be replaced by former Lookers CEO Peter Jones in a non-executive chairman role.
Vertu Motors is the UK's sixth largest automotive retailer in the AM100 with a network of 108 sales and aftersales outlets across the UK.
Its dealerships operate predominantly under the Bristol Street Motors, Vertu, Farnell Land Rover and Macklin Motors brand names.