Eagers Automotive Stock Plunges 19% on Profit Warning

Highlights

Profit Warning Triggers Stock Plunge: Eagers Automotive Ltd (ASX: APE) shares fell 19% following an announcement of a 15% decline in profit for the first half of 2024, despite a year-to-date revenue growth of 18.3%.

Economic Challenges Cited: The company cited several macroeconomic headwinds, including cost of living pressures, inflation, high interest rates, and increased market competition, as key factors impacting its financial performance.

Optimistic Future Outlook: CEO Keith Thornton highlighted potential future growth drivers such as a strong new car market, the Federal government's Instant Asset Write Off extension, and the upcoming New Vehicle Emission Standard in 2025.

ASX 200 Stock Faces Heavy Selling Pressure

On Wednesday, Eagers Automotive Ltd (ASX: APE) experienced a significant drop, with shares plummeting 19%. The automotive retail group's stock, which had closed at $12.19 the previous day, plunged to $9.87 before recovering slightly to $10.42, marking a 14.5% decline. This steep decline comes as the S&P/ASX 200 Index (ASX: XJO) saw a modest rise of 0.2%.

Profit Outlook Sparks Sell-Off

The sell-off was triggered by a trading update from Eagers Automotive that highlighted a reduced profit outlook for FY 2024. CEO Keith Thornton attempted to reassure investors by emphasizing the company’s focus on controllable factors despite external economic challenges. Thornton stated, "We are acutely aware we will experience economic cycles, both good and challenging."

However, the announcement of a 15% decline in profit for the first half of 2024 overshadowed these reassurances. Thornton explained, "Given the current market and business dynamics, and with a cautious lens on consumer sentiment, we expect to achieve an underlying trading performance for the first half of 2024 that is approximately 85% of the underlying profit before tax for the first half of 2023."

Challenges Ahead

Eagers Automotive faces multiple macroeconomic headwinds, including:

• Cost of Living Pressures: Impacting retail consumer spending.
• Inflationary Conditions: Increasing the cost of operations.
• Interest Rates: Operating under high-cycle interest rate conditions.
• Competitive Market: Navigating an increasingly competitive landscape.

Despite reporting an 18.3% revenue growth year-to-date compared to the same period in 2023, the profit warning has significantly impacted investor sentiment.

Positive Outlook for Future

Looking ahead, Thornton remains optimistic about potential boosts to the company’s performance. He noted that the new car market is on track for another record year, supported by the Federal government's extension of the Instant Asset Write Off and the upcoming New Vehicle Emission Standard in 2025. Thornton added, "We remain on track to exceed our revenue growth ambition in 2024 and will continue to be relentless in the execution of our business transformation strategy."

Investors are watching closely to see if these positive developments can help stabilize the stock and restore confidence in Eagers Automotive’s future performance.

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