LISTED car retailer Peter Warren Automotive has trimmed its earnings outlook as it sees reduced margins and economic pressures into the current financial year.

It said it expects underlying profit before tax to be in the range of $52 million to $57 million. 

PWR did not forecast a profit figure when announcing its first-half return in January.

But when it reported underlying profit of $34.4 million for the first six months of the 2024 financial year – a fall of 20.4 per cent – it said rising costs including interest rates and declining new-car margins were responsible for the slide.

This week it said profit would be down because of a significant increase in vehicle supply by OEMs which has led to greater competition between dealerships and lower gross profit margins on new vehicles. 

“The contraction in new vehicle margins has occurred across the industry and is the most acute in brands and models where supply levels and inventory holdings are highest,” it said.

In addition, PWR said the level of customer demand for new vehicles has reduced as a result of cost-of-living pressures.

It added that interest costs had increased over the previous year “in line with interest rates and inventory.”

However, PWR said the revenue streams of the business had performed well with growth being achieved in a number of areas, including the volume of vehicles sold.

“Service and parts revenue has continued to see good growth, along with used cars where further growth is expected,” it said in a statement to the Australian Securities Exchange (ASX).

The company said it has implemented steps to mitigate the decline in new-car margins. These included: limiting inventory levels and associated costs by partnering with OEMs on supply intake and increasing sales and marketing activities.

It said it has also maximised revenue growth in service, parts and used cars and continuing cost-management activities to limit cost increases and maximise the leveraging of fixed costs as revenue continues to grow.

“These actions have not fully offset the impact of falling new-car margins,” it said.

“The new-vehicle order bank has also cushioned the margin reduction but order-bank refill is now occurring at lower margins.”

PWR said it now expects new-car margins to remain under pressure and even see some further small reductions.

“However, Peter Warren will continue to benefit from ongoing growth in service, parts and used cars and also by the continued management of costs and inventory,” it said.

“Ultimately, margins and performance are expected to remain above the levels seen prior to the COVID disruption.”

It said the board remained committed to the company’s growth strategy “including selectively pursuing disciplined acquisitions.”

“With low levels of net debt and a strong balance sheet underpinned by property, Peter Warren remains well placed for the longer term.”

By Neil Dowling

AdTorque Edge