- H1 revenues up 10%, but higher costs clobber profits
- Full-year profit guidance lowered
- Service-related sales now 43% of group, 22% in 2020
The 60% share price gains in motoring and cycling products company Halfords (HFD) seen over the last two months came to a screeching halt on Wednesday as investors rushed to take profits after the retailer lowered its profit outlook.
The shares fell 7% to 198.9p, which takes year-to-date losses to 45% compared with a 3% fall in the FTSE All-Share.
The company claims it has ‘good visibility’ on second half costs and has increased anticipated cost and efficiency savings to £20 million from £15 million set out at the full year results in June.
Current trading continues to be ‘strong’ in non- discretionary areas such as servicing, repairs, and MOTs while pure discretionary spending has softened, Halfords said.
LOWERED GUIDANCE
Underlying pre-tax profit is now expected to be at the lower end of the £65 million-to-£75 million range for the year ending 31 March 2023.
The company said even the bottom end of the range represented double-digit growth compared with 2020 and is ‘testament to our transformation and the increasing resilience of the business’.
However, it is likely analysts will revise down their forecasts to reflect the new reality. Consensus earnings estimates have been revised down by around 30% in 2022.
RESILIENT H1
Revenues increased 10% year-on-year to £765.7 million despite tough comparisons and were 34% ahead of 2020, the last restriction free comparable period.
Pre-tax profit more than halved to £29 million as operating costs surged 40% partly reflecting acquisitions and ‘significant’ cost inflation.
CEO Graham Stapleton commented: ‘This has been a period of strong strategic progress and resilient financial performance for Halfords. In such a volatile macroeconomic environment, our strategy of focusing on the kind of predictable and recurring revenue that comes from motoring services and needs-based products has never been more relevant.’
In October 2022 Halfords purchased the UK’s largest commercial tyre company Lodge Tyre, increasing the proportion of ‘services’ within the group.
EXPERT VIEW
Russ Mould, investment director at AJ Bell, said: ‘Halfords can keep the car on the road if all people are buying are the basics, but it may not see accelerating growth.
‘At least this underscores the logic of the current strategy of bolstering its motoring services arm, announcing two significant deals on this front in recent weeks.
‘This offers more predictable, repeat revenue and would make the business more resilient to ups and downs in the consumer backdrop.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The editor of the article (James Crux) owns shares in AJ Bell.
