- Earnings forecast cut a second time
- New guidance more than 20% lower
- No quick fix on the horizon
Investors in bike and car accessories retailer Halfords (HFD) gave the firm’s latest trading update the thumbs down after it cut its profit outlook for the second time in less than two months.
The shares dropped more than 50p or 23% to 164p shortly after the start of trading, with more than three million shares changing hands in the first couple of hours, over 10 times the usual daily volume, before settling down 20% at 173p.
WHY ARE INVESTORS UNHAPPY?
The group, whose financial year runs from April to March, opted to present its third quarter results - i.e. for the three months to December - with the same period in 2019 which it said provided ‘a better understanding of underlying performance’ given the disruption from Covid during the last two years.
On that basis, group revenue for the quarter grew 38% or 12.6% on a like-for-like basis due to ‘strong sales in Motoring and needs-based categories’.
However, at the same time the firm said overall sales were impacted by softer than expected Cycling and tyre markets, while its Autocentres saw a higher proportion of sales in lower-margin categories due to the lack of qualified technicians, which affected group profitability.
Against this, cost reductions are on track to deliver savings of £20 million, a third more than the firm had budgeted, while retail inventories are lower than at the same point last year.
As a result of the shortage of skilled staff and a bigger-than-expected fall in demand for more discretionary high-ticket items in its Retail business, underlying pre-tax profits for the year to March are seen in the region of £50 million to £60 million.
When it published its half-year results in late November, the firm lowered its guidance from between £65 million and £75 million to the lower end of the range as it noted ‘softness’ in more discretionary areas of spending.
Taking the mid-point of the latest forecast, this year’s profits are now seen more than 20% lower than originally thought.
NO QUICK FIX IN SIGHT
Halfords certainly isn’t the only business facing a lack of skilled staff, and to its credit it foresaw the issue and set up its own apprenticeship scheme to try and avert a shortage of mechanics.
However, the combination of experienced technicians leaving the industry as part of ‘the great retirement’ following the pandemic and the lack of appeal of manual work for younger people mean it faces an uphill struggle.
Meanwhile, the surge in interest in cycling during the pandemic, when everyone wanted to get outdoors and the roads were free of traffic, seems to have run its course.
People have returned to work, traffic levels have risen again and the cost of living crisis has affected attitudes to spending on big-ticket items.
While a £500 or £1,000 bicycle may be nice to have, for most people it isn’t a must-have, and whereas in the spring of 2020 there were three-month waiting lists there are now plenty of second-hand bikes making their way onto the market after clogging up hallways and garages for the last two years.
