Bapcor (ASX:BAP): Its been a horror week with a 3rd profit downgrade in less than a year

This week investors in Bapcor (ASX:BAP) saw a 3rd profit downgrade in less than a year and its CEO-elect walk away two days before he was meant to start. As a consequence, its shares are down over 25% in a month.  Talk about a crappy run.

Who is Bapcor (ASX:BAP)?

Bapcor sells and distributes vehicle parts, accessories, automotive equipment and services and solutions in Australia, New Zealand and Thailand. It is best known for its Autobarn stores, of which there are 130 in Australia, along with other brands, including ABS and the Shock Shop.

The pandemic presented a mixed bag for the company. Although its stores were forced to close to retail customers, it could still provide vehicle servicing and repairs for trade customers who could still do business, and these accounted for 80% of its business. In FY21, it made a $130m profit, up nearly 40% from the year before. Nonetheless, shipping costs increased and backlogs emerged, causing the company to bulk up on inventory. But enough about ancient history.

A promise of gold, but a delivery of multiple downgrades

In FY23, Bapcor made $2bn in revenue (up 9.7%) and a profit of $125.3m. It paid a record dividend of 22c per share, representing nearly 60% of its profit. At the time, it told investors the following:

Source: Company

Barely two months later (in October 2023), the company held its AGM and told investors the year had not been working out as it had planned, warning of short-term margin pressures from cost inflation, increasing payroll taxes, depreciating costs and interest rates. It told investors its profit was behind expectations, although the shortfall was only in the ‘mid-single digit millions of dollars’.

Another three months later (in January 2024), it gave a trading update and unveiled a preliminary profit of $53-54m, behind the previous year’s $62m profit by 13-15%. It told investors it had taken actions to deliver savings to address cost inflation.

A CEO leaving 2 days before he started

Before we get to this past week’s downgrade, we observe that this was meant to be the week that new CEO Paul Dumbrell was to start – on May 1. On the morning before, the company told investors he ‘has made a personal decision not to join the company’. And so interim CEO Mark Bernhard continued on. Did Dumbrell pull out because he was aware of what was going on (including the forthcoming downgrade)? Only those who have spoken to him could know for sure, although media reports suggested that he had been speaking to suppliers, ex-Bapcor staff and industry executives. Specifically, ex-CEO Darryl Abotomey told the AFR as such, although stopped short of linking these to his decision to pull out.

Three time’s a “charm”?

And then yesterday (on May 2), Bapcor revealed its profit for the second half of FY24 would be below the first half of FY24’s figure (which was ultimately $54.2m). And so it expects a full year profit of $93-97m. But even this was predicated on the assumption that May and June were historically the strongest trading months, even though the company noted consumers were cutting back on spending. Once again, it told investors it was working to reduce the cost base, but investors are seemingly impatient for results.

To add insult to injury, The Australian reported that private equity firms had been eyeing Bapcor off after earlier downgrades, but had now given up. Again, the company told investors the long-term outlook was good, but it seems seeing will be believing.

So, what now for Bapcor shareholders?

The only thing certain about Bapcor is that no one will believe anything positive it says when it releases its FY24 results. Investors will be too afraid of believing it again, at least until it starts walking the walk so far as its cost-cutting program and long-term outlook are concerned. In other words, steer clear of this stock for a while longer.

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