The Bapcor Ltd (ASX: BAP) share price is on watch today after the auto parts business provided a trading update for the first quarter of FY22.
Bapcor’s FY22 update
The Australasian vehicle part business said that it had seen a solid start to FY22, with overall group revenue flat compared to the first quarter of FY21.
The prolonged lockdowns in New South Wales, Victoria, ACT and New Zealand affected at least 70% of stores.
Bapcor said that non-locked-down areas were overperforming compared to expectations.
Performance breakdown
Trade (Burson) revenue was up 2%, New Zealand/BNT revenue was down 10%, retail (Autobarn) revenue was down 12%, online retail revenue was up 80% and specialist wholesale revenue was up 7%. In the specialist areas, the electrical and heavy truck parts were performing “strongly”.
Costs and margins
Bapcor explained that it was experiencing a higher cost base due to duplicated costs with the Victoria distribution centre. It is also seeing higher costs at its group office as well as providing team member support during lockdown.
Looking at the gross profit margin, Bapcor said margins were stable across wholesale and New Zealand. However, the gross margin was down around 0.5% in trade and retail due to the revenue being driven by promotional and online pricing (especially click and collect).
Pleasingly, Bapcor said that it expects margins to revert when lockdowns cease.
Growth plans
Bapcor mentioned a number of areas that it’s working on.
Management said that the store rollouts and refurbishments are on track for the full year.
The three largest distribution centres have been transitioned into the new Victorian distribution centre. The Brisbane distribution centre project is underway.
Bapcor is also working on, and carrying out, its digital transformation.
The own brand level of sales are increasing, which comes with higher profit margins.
Outlook for FY22 and the Bapcor share price
Bapcor thinks the fundamentals of the vehicle aftermarket continue to remain strong. The average age of vehicles continues to rise, which need more maintenance.
Other COVID-19 trends are also continuing, including the strong second hand vehicle market, a move away from public transport and more people spending their holidays domestically and using their vehicles.
In FY22, Bapcor is still aiming to deliver pro forma earnings at least to the level of FY21. The first half of FY22 is expected to be softer than than the first half of FY21, but then the second half of FY22 is expected to be better than FY21 second half.
I think Bapcor is one of the promising ASX growth shares to watch, particularly when it comes to its potential Asian expansion. The transition to electrical vehicles is both an opportunity and something to be aware of too.
