Car parts-to-bicycles seller Halfords (HFD) has reported weaker than expected first half sales growth and downgraded full year profit guidance.
Shares in the struggling retailer reversed 3.2% to 166.8p, although the scope of the fall was moderated by a steep decline yesterday and the fact the market was already pricing in bad news.
BACKPEDALING SALES
During the 20 weeks to 16 August, Halfords’ sales were pegged back by cooler, wetter summer weather and weaker consumer confidence.
With shoppers seemingly unwilling to commit to big-ticket purchases, the Redditch-based retailer’s like-for-like sales declined in both the motoring and cycling categories, although less discretionary categories such as motoring services ‘have been more resilient’.
Cycling sales declined against tough prior year comparatives boosted by the warm and dry summer last year, although electric bikes continue to grow strongly. Over in motoring, Halfords’ ‘3Bs’ - bulbs, blades and batteries - returned to growth.
DOWNGRADING GUIDANCE
Halfords remains focused on improving gross margins and keeping a lid on costs, although subdued sales trends twinned with spending to stimulate growth means underlying pre-tax profit for the year to March 2020 is expected to be ‘within the range of £50m to £55m’. Before today, the Bloomberg compiled consensus range was £50m to £59m.
Liberum Capital isn’t making any changes to its bottom of the range 2020 estimate of £50.4m, having ‘prudently’ lowered forecasts in early August.
Halfords’ chief executive officer Graham Stapleton pointed to increased market share in its core categories despite challenging market conditions. Yet he cautioned: ‘In the second half, we believe the economic and political uncertainty will continue to impact big-ticket discretionary spend and, therefore, as in the first half, we will continue to focus on improving gross margins and controlling costs.
‘We set out a new strategy for the business last year and while it is still early, we have already seen encouraging signs of progress. We remain confident that it is the right strategy to drive the sustainable growth of the business.’
READ MORE ABOUT HALFORDS HERE
Liberum remains bullish on the recovery potential of hard-hit Halfords, arguing a return to sustainable profit growth is on the horizon. It adds: 'We think the group will soon overcome the legacy of the past having invested heavily in the business over the past five years and with a bold, yet very credible strategy under a new senior team, we think an inflection point is in sight.’
However Russ Mould, investment director at AJ Bell, insisted: ‘Halfords is going from bad to worse with yet another profit warning. The company is blaming the weather and weaker consumer backdrop but if you read the reviews of Halfords online it would seem the retailer has a big problem with in-store stock availability, staff who aren’t very helpful to customers and delays with online orders reaching stores for collection.
‘Halfords used to be the go-to place for car parts and bikes but customers who have a bad experience will simply vote with their feet and go elsewhere. Is the company now paying the price with its falling sales? If the company wants to pin its fortunes on being a service-led business it seems there is a lot more work to be done to improve standards.’
