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Pendragon's Q1 underlying profits halved, as nearly new stock drops

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First quarter profitability has slumped "in line with expectations", said Pendragon in a trading update, which outlined that its new and used car revenues have declined against the very strong Q1 of 2017 when manufacturers drove the market ahead of VED changes.

Trevor Finn, Pendragon chief executive, pointed out that the group’s Q1 2018 used vehicle revenue actually increased 3.1% year-on-year, when excluding nearly new sales.

“We are making progress on the delivery of our target of doubling used revenue by 2021 with three retail store openings this quarter and further retail stores planned in the year.  The group performance remains in line with expectations for the full year,” Finn added.

Underlying profit before tax fell by 54% to £15.0m from £32.4m in the prior year, said Pendragon.

It has reduced like-for-like costs by £3.9m during the period, as it progresses its strategic actions outlined last year, which include putting more focus on its software business, Pinewood, the disposal of its USA operations, and paring back its high cost exposure to premium brands.

Chris Caygill, who headed Porsche Retail Group last decade and has since operated a multi-site used car supermarket chain, has been hired as Pendragon’s used car director.

He will manage the rollout, delivery and operation it its used car retail stores across the UK, which have recently expanded into Norwich, Ipswich and Shrewsbury.

Pendragon aims to double its used vehicle revenue to around £4bn by 2021.

The statement outlines a 1.5% drop in used vehicle revenue during Q1, due to a drop in nearly-new vehicle sales.

Pendragon’s average inventory of nearly-new vehicles fell 24%, while average total inventory fell by 3.3% - it said the impact was a reduction in margin because of a lower proportion of freshly acquired used stock.

And in March used vehicle sales suffered as “we were unable to retain sufficient used stock to meet demand,” said Pendragon.

Used vehicle gross profit was down 16.5% in Q1 versus a record Q1 2017.

Action is being taken during Q2 to increase used inventory levels with fresh stock to boost sales at an improved margin, and Pendragon expects an uplift in used revenue in the remainder of the year as a result of opening more stores.

New vehicle revenue fell 13.3%, and gross profit on new dropped 17.6%, but Pendragon said new vehicle margin is returning to normal levels after a dilution in Q3 and Q4 2017.

Aftersales revenue in the period increased by 3.1% on a like for like basis following a strong UK retail labour sales performance. 

Aftersales gross profit fell by 3.7% in the quarter as the group invests in extra capacity.

The dealer group added: “The group has a clear focus and direction to transform the business and double used vehicle revenue by 2021, enabled by our market leading software and investment in used car and aftersales stores in the UK. 

“The expected market conditions in quarter one impacted profitability.  We anticipate our performance in 2018 to be in line with expectations given our assessment of a stronger second half versus a weak 2017 comparative.”

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