Car parts, bicycles and camping equipment purveyor Halfords' (HFD) recent rally comes to a halt despite solid full-year results. Group like-for-like sales are 1.5% ahead, profit before tax and one-off items is up 0.5% at £81.5 million, the upper end of the guidance range, which begs the question, why have the shares reversed 4.8% to 417.8p today?

CEO Jill McDonald (pictured below) says this was a solid performance, flagging market share gains in both the motoring and cycling divisions and insisting 'the Moving Up A Gear strategy aimed at driving sustainable long-term growth is developing well, including a step change in customer data, the introduction of new services, product innovation and exciting collaborations'.

20150320 Jill McDonald Pic 1

Investors however are focusing on a downgrade to March 2017 profit before tax guidance. PBT was previously expected to be flat year-on-year, but due to the adverse impact of the US dollar rate - Halfords buys goods worth £200 million denominated in dollars each year – consensus estimates are drifting down today.

There's also a somewhat cautious outlook for the still-fragmented cycling market. Halfords' like-for-like cycling sales declined 0.9% last year amid poor summer weather and discounting across the market. And while bike sales returned to growth in the third and fourth quarters, Halfords concedes 'it may take some time to return to consistent growth and the weather continues to have an impact on the timing of customer purchase.'

Laura Trott image

The good news is Halfords, which also trades through the Cycle Republic chain, has inked an exciting collaboration with Olympic cyclist Laura Trott (pictured above) to create a range of limited edition performance bikes for women.

The retailer also remains 'confident in the long-term growth prospects of the cycling market', insisting 'participation in the UK is still low and there is large scope for new cyclists as well as increased spend from existing cyclists. This is supported by significant government support in London and in many other cities, as well as consumer trends towards healthy activities.'

While the the full-year dividend rises 3% to 17p, some investors appear to be disappointed by the absence of a special dividend, Canaccord Genuity's David Jeary highlighting some £67 million of headroom, equivalent to 34p per share. Strongly cash-generative, Halfords continues to deleverage; year-end net debt was down £13.9 million to £47.9 million, taking the net debt-to-EBITDA ratio down from 0.6 times to 0.4 times, though surplus cash returns are the fourth priority behind growth capex, the ordinary dividend and M&A.

Web chart - HALFORDS - June 16

Halfords today announces a new net debt-to-EBITDA target of one times, which could stretch to 1.5 times for an appropriate acquisition. Only last week, Halfords spent £18.4 million on the acquisition of Tredz and Wheelies, specialists in the online sale of premium bikes and accessories.

Issue Date: 01 Jun 2016