April 17, 2019 / 7:42 AM / 8 months ago

UPDATE 2-Car dealer Pendragon launches review after sustained losses

* Reports loss of 2.8 mln stg in first three months

* Review under new CEO, CFO

* Company blames margin pressure, costs

* Shares fall as much as 13 pct (Adds details on costs, Brexit, results, analyst comments)

By Noor Zainab Hussain

April 17 (Reuters) - Pendragon on Wednesday launched a review of its business after the car dealership chain’s loss-making streak stretched into the first quarter of 2019, hit by a slump in confidence in the market and sending its shares down more than 13 percent.

Pendragon, which recently replaced both its chief executive and chief financial officer, has been plagued by rising labour costs for skilled technicians, and has also felt a squeeze on margins in the premium sector.

It reported an underlying loss before tax of 2.8 million pounds for the period from Jan. 1 to March 31, and said this was about 10 million pounds ($13.1 million) lower than its expectations. Like-for-like new gross profit fell 5.4 percent.

It had already flagged the weakness when it reported subdued new car sales in its annual update in March.

Pendragon blamed challenging trading conditions which resulted in a reduction in margins in new, used and aftersales of cars. It also flagged higher losses from Car Store, its online marketplace.

British new car registrations fell by around an annual 3 percent last month as uncertainty over diesel legislation and Brexit continued to hit consumer confidence, according to preliminary data from an industry body.

Jefferies analysts said Pendragon’s loss could drive a downgrade of some 20 percent to consensus estimates for 2019 profit.

Pendragon, which operates the Evans Halshaw, Stratstone and Quickco brands, last year shifted its focus to used vehicles after issuing a profit warning. It posted a pretax loss in 2018.

“In light of this trading update ... a review of the operational and financial prospects of the group is currently being undertaken,” it said, adding it would conclude in June.

CMC Markets analyst David Madden said the review would likely focus on improving margins by shutting down certain operations and focusing on more lucrative areas. The review could lead to job cuts and cutting non-essential overheads.

The Evans Halshaw brand, which has 118 retail locations, has warned Britain’s impending exit from the European Union would result in uncertainty in consumer confidence and manufacturer behaviour for new car supply.

Pendragon’s peer Inchcape reported lower annual profit in February due to Britain’s cooling auto market and after sales were hit by stricter emissions rules.

Pendragon shares pared their losses to trade down 5.8 percent at 23.7 pence at 0848 GMT. ($1 = 0.7659 pounds) (Reporting by Noor Zainab Hussain and Samantha Machado in Bengaluru; Editing by Gopakumar Warrier and Alexandra Hudson)

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