Bapcor’s trading update revealed ongoing sales declines and a sharp drop in profit margins for 1H26e. The company’s discovery of poor business practices highlights the complexity in the group and the need to simplify. Based on current trends, sales should stabilise in 2H26e and cost savings are likely to trigger a margin recovery. On our estimates gearing will stay below covenant levels and free cash flow should help reduce debt.

Bapcor reported a 4% decline in EBITDA for FY25. The decline in both the Trade and NZ division’s profit margins was notable in the second-half. We expect the company to have another decline in sales for 1H26e given some store closures and a more competitive environment in Australia and NZ. The NZ segment’s margins look to be resetting lower following a COVID-19 peak. Even so, margins are still healthy relative to peers. The company’s indication that profit will skew to 2H26e is vague. The shape of earnings suggests the profit recovery begins in FY27e.

The more alarming features of Bapcor’s trading update are the rapid deterioration in sales and immediate departure of three board members. While somewhat “glass half-full” we interpret the FY25e trading update as more a “clean out” of the financials and a reset. Management targets over FY25e to FY30e will be easier to achieve.

Bapcor reported 1H25 underlying sales up 0.3% and EBITDA of $132 million, down 8%. Sales have started the second half up slightly. The full year cost saving guidance for $20 to $30 million has been reiterated and will lead to lower total costs in 2H25e, supportive of an improvement to EBITDA. Bapcor will host a Strategy Day in late April 2025 at which the new CEO will provide more clarity on the strategic direction.

Super Retail Group’s trading update for the first 16 weeks highlights a slight softening of sales trends and some increased pressure on gross profit margins. The increased competition in the auto market is of note given Supercheap Auto accounts for over half the group’s earnings and close to two-thirds of valuation. Repco is becoming more competitive in retail and Bunnings will expand in auto in the next six months. 

Bapcor reported FY24 sales of $2.03 billion up 1% and EBITDA of $269 million down 10%. Net profit fell by 24% pre significant items on higher interest costs. The company reported a small improvement in sales early in FY25e. However, the drop in 2H24 profit margins is likely to result in only modest EBITDA growth for FY25e even though the company has cost savings to flow through. During the second-half all Bapcor’s divisions had negative same store sales performance with Trade down by 1.5%, Retail down 1.0% and New Zealand lower by 0.5%.

Super Retail Group reported FY24 EBIT of $400 million, which was down 9% year-on-year, but up 57% on FY19 levels. This represents a compound annual growth rate of 9%. Given sales trends are starting to improve EBIT should also start to rise. The question is how much. We expect LFL sales to remain between 1%-3% and EBIT margins will be largely steady. Increased competition in auto keeps us cautious about group profit margin expansion. The company’s FY24 EBIT margin of 10.3% is about 80bp higher than FY19 supported by higher gross margins.