Tyre check at Halfords
Halfords’ Autocentres arm delivered a strong performance, but this was offset by a decline in retail / Image source: Halfords
  • Annual profits plunge nearly 20%
  • Tyre and cycling markets depressed
  • Autocentres arm continues to motor

Profits at motoring-to-cycling products purveyor Halfords (HFD) went into reverse in the year to March 2024 as the ongoing cost-of-living crisis sapped consumer demand for bikes, tyres and other big ticket products.

Shares in Halfords cheapened 5% to 142.8p as the Worcestershire-based retailer issued a cautious outlook for full year 2025, calling out low consumer confidence around discretionary purchases as well as rising freight and wage costs.

RETAIL PRESSURES PERSIST

While group revenue grew 7.9% to £1.7 billion last year, adjusted pre-tax profit plunged 18.3% to £36.1 million, towards the lower end of previously downgraded guidance, as weak consumer demand and higher costs crunched earnings.

Halfords’ Autocentres garage business delivered another strong performance, but this was more than offset by a decline in its retail operations as the post-pandemic cycling boom continued to unwind and cash-strapped drivers delayed spending on new tyres.

Faster-than-expected consolidation of the cycling market has driven higher levels of discounting and put pressure on Halfords’ gross margins, but the hard-pressed retailer expects to emerge in an even stronger position once market conditions normalise and believes a consumer tyre market recovery would provide ‘significant opportunity for revenue growth’.

CAUTIOUS OUTLOOK WEIGHS

Halfords warned trading in the new financial year has remained ‘soft’, impacted by low consumer confidence around big-ticket, discretionary purchases, and poor spring weather, which has reduced store footfall and crimped cycling and staycation product sales.

The company now expects market volumes to decline in cycling and consumer tyres this year, and to remain broadly flat in motoring servicing and retail motoring products.

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EXPERT VIEWS

With a ‘sell’ rating on the stock, Liberum Capital commented: ‘Full year 2024 was a year of mishaps: lack of internal controls led to material prior-year adjustments, several cuts to forecasts, a noteworthy bid rebuffed by the board, but having not even taken it to shareholders now looks like an own goal.’

The broker continued: ‘The result is an abysmal share price performance, cloudy outlook, and a lack of confidence in delivery.’

Russ Mould, investment director at AJ Bell, said: ‘Halfords needs a complete overhaul and is ripe for an activist investor to come along and make demands. The shares are trading at a two-year low and 75% below their peak in 2015. It’s clear that the auto services arm is the future of the business and Halfords already has a strategy in place to make this bigger.

‘The opportunity lies in speeding up this transition and working out how to fix the retail side, which might simply be to scale back the cycling bit with a smaller range of products and focus more on core motoring items.’

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.

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Issue Date: 27 Jun 2024