Shares in car parts-to-cycling retailer Halfords (HFD) crash 23.4% lower to 213.4p after it reported poor Christmas sales figures and warned profit would fall short of market estimates both this year and next year.

The bikes-to-car batteries seller’s like-for-like sales softened 1.7% in the third quarter to 4 January, with 1.4% growth in Halfords’ Autocentres undone by a 2.2% decline in retail sales.

Redditch-headquartered Halfords has blamed warm winter weather and weak consumer confidence for its disappointing festive retail showing.

Like-for-like cycling sales were 0.3% lower in the 14 weeks to 4 January, with cash-strapped shoppers perhaps choosing to shun discretionary purchases this Christmas.

Furthermore, the unseasonably mild winter weather meant car maintenance and car enhancement sales slumped by 4.6% and 2.7% respectively.

DRIVING MAJOR DOWNGRADES

New CEO Graham Stapleton, who set out a new strategy for Halfords in September 2018, says ‘this has been a challenging third quarter for the business, driven by exceptionally mild weather and ongoing weak consumer confidence. Together, these factors have led us to reduce our profit expectations.’

Despite getting a tight grip on operating costs and gross margins, Halfords now expects underlying pre-tax profit for the year ending 29 March 2019 will be ‘in the range of £58m to £62m’ – that’s down from the £71.6m achieved last year and significantly shy of the £69.5m Liberum Capital’s forecasts were calling for prior to today’s update.

Worryingly, Halfords believes consumer confidence ‘could remain weak into next year’ and is guiding towards ‘broadly flat’ profit for full year 2020.

Stapleton continues: ‘Whilst this has been a difficult period, we have managed costs and margin well and our free cash flow remains strong. Halfords is a robust business and we firmly believe that the strategy we outlined in September is the right direction for the business.’

One crumb of comfort for investors is that Halfords actually expects this year’s free cash flow to be up on last year and remains confident it will grow free cash flow over the medium term. ‘This, combined with positive longer-term prospects for the group, gives the board confidence to maintain its dividend policy,’ today’s statement reads.

WEATHER EXCUSES WON’T WASH

Russ Mould, investment director at AJ Bell, comments: ‘When will companies learn to stop blaming the weather for their problems? Auto parts and bike retailer Halfords attributing a big reduction in guidance given as recently at November on “exceptionally” mild temperatures, even in part, is hard to justify.

‘According to the Met Office the UK’s mean temperature in December 2017 was, like last month, above the long-term average but the company made no mention of this a year ago when its figures were more robust.

‘And even if, as the company indicates, the weather hit sales of retail motoring products and services, it could have provided a boost on the cycling side as the mild conditions encouraged more people to get on their bikes.

‘Weak consumer confidence, which is also referenced by the company, is a more likely culprit and explains why the company is similarly downbeat on the outlook for the coming financial year.

‘CEO Graham Stapleton has been investing in customer service and training to improve the company’s proposition since his appointment in September 2017 but there have been similar efforts from his predecessors in the past.

‘Perhaps the cycling boom in the UK, which boosted Halfords historically, is losing traction, or the company simply isn’t as well positioned as it should be to benefit from it.’


Issue Date: 10 Jan 2019