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Halfords’ shares slide on profit warning

The wheels have come off the cycling boom, says the retailer

Source: Bloomberg

Shares in Halfords lost nearly a third of their value on Thursday after the retailer posted a profits warning. The provider of bikes and auto parts saw its share price slide 27% on the day of results after it said underlying profits before tax for the full-year 2023 would slip to a “range of £65 million to £75 million.” Previous earnings guidance was for profits of £80 million to £90 million. The shares recovered some ground, rising 9% on Friday to 149p.

The company also said that forecasting figures “with any degree of certainty this early in the year” was “particularly challenging.” Chief financial officer Loraine Woodhouse stood down from the company at the results, with Jo Hartley taking the reins.

Group sales for the full-year 2022 rose 6% to £1.4 billion compared with the same period in 2021 – but 20% compared to the same period in 2020. Underlying pre-tax profits for the year increased by 57.8% to £89 million compared with 2020 – down 9.7% on the same period in 2021.

However, operating costs rose 21% during the period due to inflationary pressures. The cycling business was also hit by strong comparative figures and disruption to supply. Nevertheless, sales of electric scooters and bikes were up 74%.

While Stapleton says Halfords is moving towards a higher “needs-based revenue stream,” it is “not immune to external challenges” and is seeing reduced demand “for more discretionary, higher ticket items” as well as higher cost inflation.

Halford shifts gear into motoring

For years, Halfords has been buoyed by the boom in cycling. However, with the shine coming off that business, the company is now concentrating on growing its autocentre division and is seeing success, particularly in servicing electric vehicles. The autocentre business grew sales by 23% on a like-for-like basis, boosted by operating efficiencies driven by its new Avayler software.

“The strength and resilience of this performance is a great illustration of Halfords’ transformation over the past two years,” chief executive Graham Stapleton told investors. “Our strategic shift towards motoring services has delivered higher, more predictable and more sustainable returns…

“While rising inflation and declining consumer confidence will naturally present short-term challenges for any customer-facing business like ours, we remain confident in Halfords’ long-term growth prospects due to our service-led strategy and the enduring strength of our brand, people, products and services.”

Retailer focusing on ‘needs-based services’

Stapleton says that Halfords is now the UK’s biggest motoring service provider, following its purchase of National and Iverson Tyres. Auto services bring in 70% of the company’s sales and Stapleton says the fact that these products and services are generally “needs-based rather than discretionary” leaves the company better positioned during the current “macroeconomic uncertainty”. Halfords recently launched a motoring loyalty club and operates a second-hand bike exchange.

Russ Mould, investment director at AJ Bell, told the FT that the cost of living crisis and a return to normality following the Covid pandemic were “clearly resulting in some of the Covid-induced surge in demand drying up.”

Halfords shares have fallen 63% in the past 12 months and analysts at broker Liberum have cut their price target on the shares to 160p. However, at 149p, the shares are worth buying for the longer term on recovery hopes.

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