By Adriano Marchese

AutoCanada shares saw a significant decline this morning following the release of their third-quarter financial report. The company reported a drop in profits and higher costs due to changing consumer spending trends in the automotive industry.

As of 10 a.m. ET, shares were trading more than 19% lower at 21.64 Canadian dollars ($15.69).

Profit and Earnings Decline

AutoCanada, a Canadian automobile dealership group, revealed that its net income decreased by nearly 31% from the previous year to C$22.8 million. Earnings per share also fell from C$1.16 to C$0.81.

Revenue Misses Expectations

Although total revenue rose by 2.1% to C$1.66 billion, it fell short of analyst expectations of a rise to C$1.7 billion.

Sales Performance

In the third quarter, AutoCanada experienced a 15% increase in new retail vehicle sales, reaching 10,555 units. However, used retail vehicle sales declined by 2.9% to 16,878 units.

Profit Margins

The gross profit per new vehicle sold decreased by 11% to C$5,648, while the gross profit per used vehicle rose by 0.3% to C$1,919.

Impact of Higher Interest Rates

AutoCanada attributed the increase in costs to higher interest rates and higher levels of new inventory, which negatively affected profitability during the period. However, the company noted that certain interest-rate swaps and lower used vehicle inventory levels partially offset these costs.

Analyst Evaluation

Scotiabank analyst Michael Doumet commented on AutoCanada's third-quarter performance, stating that lower gross profit on used vehicles and higher floor plan costs contributed to the disappointing results. Earnings before interest, taxes, depreciation, and amortization were C$66.7 million, while earnings per share reached C$0.81, both falling below consensus expectations of C$73.2 million and C$1.22.

Doumet highlighted that AutoCanada's Canadian new vehicle inventory days supply increased by 13 days to 75 days, indicating extended inventory replenishment into November. He also mentioned that higher inventory levels and higher interest rates could potentially impact vehicle gross profit per unit and finance and insurance per unit.

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