Halfords Group PLC on Wednesday reported a narrowed profit margin as an increase in cost of sales outpaced revenue growth in the first half of its financial year.

Halfords shares were down 20% to 182.40 pence each on Wednesday morning in London. They hit an intraday low of 176.60p, not far above their 52-week low of 164.10p.

The Worcestershire-based motoring and cycling products retailer said pretax profit rose 3.3% to £19.3 million in the 26 weeks that ended September 29 from £18.7 million a year prior.

Revenue grew by 14% to £873.5 million from £767.1 million, but cost of sales increased by 19% to £456.2 million from £384.6 million, while operating expenses increased 8.6% to £389.7 million from £358.7 million.

Halfords said its gross margin narrowed by 210 basis points to 47.8% from 49.9% a year before. In retail, the margin was down 330 basis points to 45.8% from 49.1%.

Halfords said it was hurt by a weaker pound against the dollar, by product cost inflation in retail, and by lower margin car tyres becoming a greater proportion of revenue after its £37.2 million acquisition of LTC Trading Holding Ltd and its subsidiary Lodge Tyre Co in October 2022.

The company maintained its interim dividend at 3p per share.

Looking ahead, Halfords said it has seen some market softening in its ‘big-ticket’ categories. It continues to expect financial 2024 profit to be second-half weighted. ‘It does, however, remain challenging to predict whether the recent trends in discretionary categories will continue.’

Beyond financial 2024, Halfords is confident in reaching its mid-term target of £90 million to £110 million in underlying pretax profit, at least 75% higher than £51.5 million in financial 2023.

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