Inchcape cuts 2026 margin guidance as Australian sales halve in September quarter

Margin guidance cut on Australian underperformance

Inchcape PLC has lowered its full-year 2026 adjusted operating margin outlook to around 5.5 per cent, down from a previous forecast of approximately 6 per cent, citing intensifying competition and weaker performance in Australia. Adjusted earnings per share growth is now expected to reach around 10 per cent, compared with earlier guidance for growth of more than 10 per cent, according to reporting by Investing.com. ²³

In its third-quarter trading update, the distributor said Australia is now expected to be margin dilutive for the 2026 financial year, having previously been an accretive business. Chief financial officer Adrian Lewis told analysts the Australian position is "not acceptable" and must improve, while confirming organic volume growth guidance remains at the top end of a 3 to 5 per cent range and free cash flow conversion above 100 per cent remains unchanged. ⁴⁵

The market reaction was sharp. Reuters reporting cited by AutoTalk Australia recorded the shares down 11.7 per cent in early trade on 22 October, and Sharecast reported the stock trading 7.9 per cent lower at 635.50p at 0940 BST. Jefferies, which rates the shares at buy, said the new EBIT margin guidance implies a cut of around 8 per cent to FY26 pre-tax profit consensus, while Panmure Liberum, at hold, sees 2026 EBIT estimates falling more than 10 per cent with follow-through to FY27 likely given it will take time to fix issues in Australia. ¹⁴

Australian volumes halve in a flat market

Inchcape's Australian volumes plunged 50 per cent in the September quarter against total industry volume growth of just 1 per cent, according to the company's third-quarter update. Asia-Pacific volumes fell 37 per cent overall against regional industry growth of 5 per cent, making the region the clear drag on an otherwise mixed group performance. ⁴⁵

Group volumes rose 3 per cent in the three months to 30 September against market growth of 9 per cent, with reported revenue up 7 per cent to £2.5 billion, including 1 per cent organic revenue growth. By region, Americas volumes rose 10 per cent against industry growth of 24 per cent, while Europe and Africa volumes jumped 21 per cent, including 16 per cent organic growth, against industry growth of 2 per cent, the update said. ²³⁴

EV shift and brand competitiveness at the core of the problem

The company attributes the Australian decline to fuel-related disruption that has accelerated a rapid shift in customer demand towards new energy vehicle products. Management told analysts that EV penetration in Australia has risen from about 8 per cent at the start of the year to around 24 per cent, according to AutoTalk Australia's coverage of the update. ¹

Inchcape also blames what it calls the deteriorating competitiveness of its key OEM partner's brand, which it says has exacerbated its underperformance and led to margin pressure in the Australian business. Chief executive Duncan Tait said in the update: "Australia remains a challenge - our key brand has underperformed, with deteriorating competitiveness in a rapidly-evolving market." ¹²⁴

Inchcape did not name the brand in its update, but AutoTalk Australia notes Subaru is the distributor's main Australian franchise, and VFACTS data shows Subaru's September sales fell 42.6 per cent to 2009 vehicles. Foton, Inchcape's other Australian brand, is described by chief financial officer Adrian Lewis as "doing very well". ¹

Product review and restructuring under way

Tait said the company is taking further decisive action in Australia alongside its existing restructuring activity, including a comprehensive review of product range and positioning in collaboration with its OEM partner. Chief financial officer Adrian Lewis told analysts the work will likely involve changes to product configuration, powertrains and positioning, and will take time, according to AutoTalk Australia. ¹

On the earnings call, Lewis said Inchcape operates as a demand-led business and does not expect an inventory problem in Australia, and that management is confident the actions will improve the business there over time but expects current challenges to continue impacting performance in the near term. Management said it is too early to guide on 2027, with the review with the OEM partner ongoing at a senior level. ⁴⁵

The update lists the Deepal exit in Australia, announced earlier in the week of the results, as part of Inchcape's portfolio optimisation, with Changan taking over the brand during a transition running to 31 March 2027. Lewis said Inchcape has agreed to mutually exit 15 distribution contracts so far this year, and suggested the Asia-Pacific region will likely not return to its previous scale, though margin recovery should come over time as the portfolio is optimised. ¹⁵

Group strength elsewhere keeps wider guidance largely intact

Despite the Australian downgrade, Inchcape retained several guidance metrics. Organic volume growth is still expected at the top end of the 3 to 5 per cent range, free cash flow conversion is expected above 100 per cent of profit after tax, and adjusted EPS growth of approximately 10 per cent is still forecast for 2026. The company also reiterated its medium-term ambition of more than 10 per cent adjusted EPS compound annual growth through 2030. ²³⁴

The quarter showed the benefit of the group's diversification, with Chinese OEM partners representing around 25 per cent of third-quarter volumes, up from historical levels, and 36 per cent of Americas volumes. Lewis noted the company has won 17 new contracts in Europe and Africa over the last four years, roughly 80 per cent of them with Chinese OEMs. The BYD distribution contract in Belgium and Luxembourg ends at the close of 2026, slightly earlier than planned, but Inchcape said that contract is financially immaterial, representing less than 3 per cent of group revenue and remaining margin dilutive. ⁴⁵

Capital returns continued during the period, with approximately £170 million of the current £250 million share buyback program repurchased so far this year, and about 18.5 per cent of the company bought back in just over two years, according to the company's third-quarter commentary. ⁵