‘Tough’ trading dents profit

2 Cheap Cars has announced a net profit after tax (NPAT) of $3.3 million for the year to March 31, 2025, after contending with what it calls a “turbulent market”.

The total was down $2.9m, or 46.8 per cent, from $6.2m in the 2024 financial year, but in line with previously announced guidance and aided by the impact of carbon credits carried forward from prior years. 

The company’s revenue and income fell six per cent over the same period to $82m, gross margin was down 14 per cent to $17.8m, and vehicle sales slipped six per cent to 7,675 units.

David Sena, chief executive, says 2 Cheap Cars’ fundamentals remain strong despite challenging market conditions.

“We’ve never seen a more turbulent market than this and there’s no question that trading is tough,” he adds. 

“However, we are a resilient business, underpinned by maintaining prudent inventory levels, a laser focus on cost control and optimising our retail footprint.”

2 Cheap Cars notes in its announcement to the NZX on May 30 that the first two months of the current financial year have proven challenging as economic conditions remain uncertain. 

“However, management expects trading conditions to improve as the cumulative impacts of declining interest rates and greater access to consumer credit take effect,” it says. 

“While 2 Cheap Cars’ strategy remains focused on margin optimisation, it is also targeting increased volume through its expanding retail footprint and enhancing the customer experience through digital and operational improvements.” 

A key growth driver will be the opening of a new flagship site measuring 5,000sqm and with capacity for 150 cars at Clemow Road, Sylvia Park, Auckland, which is scheduled for August this year. 

Michael Stiassny, chairman, notes that while the firm’s balance sheet is strong and it remains well-positioned to benefit from an upswing in consumer confidence, the board will be reassessing 2 Cheap Cars’ approach.

“As the economic environment eases and consumer confidence returns, the used car sector is one of the immediate beneficiaries. That’s simply because affordable, reliable cars are a necessity, not a luxury,” he continues. 

“However, the company is realistic about the need to continually flex to meet the market and to fine-tune operations to improve profitability. 

“The board and management are focused on ensuring the strategy remains fit for purpose and will not shy away from making changes considered necessary to create stronger shareholder value.”

By the numbers

In announcing its full-year results, the company says the decline in revenue and income reflected New Zealand’s continued economic downturn, a sharp fall in immigration and consequent softer market demand. 

The fall in gross margin was driven by aggressive discounting across the used car sector to meet depressed consumer sentiment, but still “represented a robust contribution margin of 21.7 per cent”. 

“The company’s strategic focus on optimised purchasing and the insourcing of key compliance and refurbishment activities has continued to mitigate cost pressures,” adds 2 Cheap Cars. 

“However, a decline in finance and insurance penetration rates and lack of diversified revenue streams has limited the company’s ability to fully mitigate the prolonged downturn in the used car sector.” 

Operating expenses increased by 10 per cent year-on-year, primarily driven by significantly rising costs of listing fees on third-party platforms. 

As a result, 2 Cheap Cars says it is accelerating investment into “owned” digital channels and will explore potential new third-party platforms to reduce long-term customer acquisition costs. 

It adds a substantial part of its business has historically been linked to immigration. The prolonged economic downturn and a decline in net migration, particularly in key urban centres, has contributed to reduced demand and the decrease in annual profit. 

Net operating cash inflow was $6.7m, down $200,000 year-on-year. The company states it well-positioned with inventory valued at $14.9m, up $1.1m from the prior year, because of additional direct purchasing through its Japanese subsidiary, Car Plus. 

As at the end of March, 2 Cheap Cars is in compliance with all banking covenants and has cash of $5.3m and total equity of $21.1m. 

The board has declared a final gross dividend of 2.97 cents per share, bringing total FY25 gross dividends to 6.03 cps.