Shares in car parts-to-bicycles seller Halfords (HFD) raced ahead by 47% to 88.3p on Wednesday, despite the retailer suspending the dividend to conserve cash, warning on 2020 profits and pulling guidance for the 2021 financial year given the lack of visibility amid the coronavirus crisis.
However, investors responded positively as the retailer said it has been designated by the government as an ‘essential services provider’ and outlined dramatic cash-preservation plans.
Halfords today warned underlying profit before tax for the year to March 2020 could be ‘at the lower end of, or slightly below, the current guidance range of £50-55m’, as near-term trading is likely to be ‘severely impacted’ by the lockdown triggered by the coronavirus pandemic.
While trading has been ‘in fact, very strong in the last couple of weeks’, Halfords cautioned that delivery of the full year 2020 profit out-turn would depend on sales performance in the final two weeks of the financial year.
KEEPING BRITAIN ON THE MOVE
In contrast to most other UK retailers, Halfords has been designated by the Government as a provider of essential services. This reflects its pivotal role in keeping people moving, including key workers such as NHS staff, so it has the legal flexibility to remain open across the entire business.
As things currently stand, its autocentres garages and mobile vans are open, and within the retail business Halfords is working through a plan to provide partial store coverage from later this week. It will also continue to take orders online on both Halfords.com and Tredz.co.uk, offering either a home delivery service or Click and Collect once branches are reopened.
BRAKES ON SPENDING
In today’s well-received update, Halfords also assured the market it has a healthy balance sheet, strong cash flow and access to ‘substantial liquidity’ through a £180m revolving credit facility and a £20m overdraft provided by a syndicate of major banks.
Nevertheless, in order to preserve cash at this uncertain time, the retailer has suspended the dividend, which will result in a cash saving of roughly £24m in fiscal 2021, and put the brakes on capital spending. Halfords is also haggling with landlords over rent relief, among a series of other measures, as it acts decisively to conserve cash.
‘Halfords has an essential role to play in keeping the country moving, providing vital support to emergency workers, fleet operations, key workers and the general population as they travel for essential supplies and, where required, attend places of work,’ said chief executive Graham Stapleton.
‘While significant uncertainty exists on the impact of coronavirus, we are taking immediate and significant measures to contain our costs and protect our financial position.’