Aftermarket autoparts retailer Bapcor Ltd (ASX: BAP) was having a day to forget on the ASX on Monday after announcing it expected its earnings for the year to come in at more than 30% less than expectations.
But just because the company's shares were having a shocker doesn't mean investors might not benefit over the longer term.
What is certain is that shareholders were feeling the pain on Monday as the company's shares fell 12.5% to be changing hands for $2.77.
Tough times for the business
So let's have a look at why this plunge occurred.
The company's shares went into a trading halt last week ahead of the new trading update, and when it came out, the numbers weren't pretty.
The company, which operates brands including Autobarn, Midas, and Autopro, said in its trading update that it now expected net profit for the full financial year, not including one-off significant items, to come in at $51 million to $61 million.
According to the analysts at RBC Capital Markets, this is about 32% below consensus expectations.
The company sheeted home a lot of the blame to bad practices in its Trade division, which it had inherited as a result of previous acquisitions.
As the company said:
An in-depth review of the tools and equipment business within the Trade segment is underway and has identified unsatisfactory operational practices requiring immediate attention. Changes in management have been made and an externally supported review is underway.
Pledge to do better
Bapcor said its first-half earnings would take a $12 million or so hit from related issues, including stocktake variances and stock adjustments, and Executive Chair Angus McKay said the company was working hard to improve practices.
Our roots have been built on acquiring businesses, not integrating them. Some of the practices that have been accepted inside the wider business do not meet acceptable operational standards nor the required financial / commercial expectations. I acknowledge the continued discovery of historic poor operational practices is frustrating, however we are committed to facing into the issues and correcting them.
Mr McKay said the turnaround of the business was more challenging and taking longer than expected, but management remained committed to hitting its five-year strategic goals.
Bapcor's sales revenue for the first quarter fell 2.7% to $497.7 million, with the company impacted by a challenging environment in its Retail division and a modest decline in parts revenue in its Trade division.
So how is this all good news for shareholders? Well, the analysts at RBC Capital Markets have an outperform rating on the stock and a price target of $4.50.
If this level is attained, shareholders buying in at today's share price will enjoy a healthy 62.5% gain.
Perhaps it's time to "buy the dip", as they say.
