- Flat underlying profits
- Discretionary spend remains weak
- Halfords ‘comfortable’ with FY25 consensus
Cycling and motoring products purveyor Halfords (HFD) has been the bearer of bad news for some time, with savage earnings downgrades sucking plenty of air from the tyre seller’s share price.
Today’s (26 November) first half results revealed flat profits with discretionary spending weak and consumers remaining cautious over big ticket purchases.
However, shares in Halfords staged a 12% relief rally to 144.3p as the company reported improved gross margins and cash generation and left its year-to-March 2025 earnings guidance unchanged.
EARNINGS DEFLATION
The car batteries-to-bikes seller’s results for the half to 27 September 2024 revealed a 23% plunge in statutory pre-tax profit to £17.8 million as group revenue softened 1% to £864.8 million.
Underlying pre-tax profit was broadly flat year-on-year at £21 million and Halfords said it remains ‘comfortable’ with the £28.5 million of full year pre-tax profit called for by consensus, though it bemoaned measures announced in the UK Budget, which will add £23 million of direct labour costs to an already hard-pressed business.
ACUTE COST IMPLICATIONS
Halfords’ CEO Graham Stapleton warned: ‘The cost implications from the recent UK Budget are particularly acute for a specialist retailer that provides expert advice and assistance to customers, face to face. While we will work hard to mitigate these costs, we urge the government to consider alternative ways of supporting businesses like ours, including the acceleration of Apprenticeship Levy reform, which would help us to upskill existing colleagues and offset some of the new headwinds.’
STUCK IN THE SLOW LANE
Dan Coatsworth, investment analyst at AJ Bell, said Halfords’ results show a business ‘stuck in the slow lane. Make no mistake, the jump in its share price does not reflect a business in perfect health. This is simply a relief rally that full-year earnings guidance hasn’t changed.’
Coatsworth added: ‘An additional £23 million in costs as a result of the Budget presents yet another headwind for Halfords and it will have to push up prices, find more cost savings in the business or cut jobs to mitigate this factor, or simply stomach lower profit margins.
‘To its credit, gross margins have improved in the first half and there have been improvements to cash generation. The fact it has maintained the dividend, and not cut it, also shows that management aren’t panicking about the impact of the Budget on the business and its customers.’
Julie Palmer, partner at Begbies Traynor (BEG:AIM), said Halfords will be desperate for some sort of boost in consumer demand over the Christmas period, with its interims ‘showing just how weak discretionary spending has been in certain areas of the market in recent months’.
Palmer added: ‘Halfords is certainly doing all it can to make itself more efficient, making £14.6 million of cost savings made over the past six months. That said, the best way to boost returns is of course to sell more products at higher margins, so Halfords’ expansion into selling more premium bikes will have to be watched closely.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
