Investors in Halfords (HFD) bid the shares up 5.7% to 202.6p after the bikes-to-car batteries retailer said trading since the start of the new financial year has been ‘strong’ and reiterated guidance for the year to March 2024.

Encouragingly, group like-for-like sales are in positive territory in the year-to-date despite headwinds from inflation and the cost-of-living crisis.

And though the retailer encountered less favourable weather conditions in early spring, management believes Halfords has increased its market share across all major categories.

Discretionary spending is under pressure, with the consumer tyres and cycling markets facing ‘a very significant downturn’ according to the company. Yet Halfords is confident of delivering flat profits this year ahead of a resumption of growth to £64 million in 2025 as it targets market share gains across the cycling, tyre and motoring markets.

43% PROFITS REVERSE

Results for the year to March 2023 showed a 43% year-on-year drop in adjusted pre-tax profit to £51.5 million, towards the lower end of the previous £50 million to £60 million guidance range.

At £1.59 billion, group sales were 39.5% above pre-Covid 2020 levels and 15.3% ahead year-on-year, despite significant declines in the cycling and consumer tyres markets as consumers grappled with the cost-of-living squeeze.

Gross margin declined by 290 basis points year-on-year as Halfords remained competitively priced across its motoring and motoring services businesses and tyre business acquisitions diluted margins in the autocentres arm.

A ‘GOOD’ START

However, investors were heartened after Halfords insisted trading in full year 2024 to date has been ‘good’, with positive group like-for-like sales despite less favourable weather conditions in early spring.

The retailer expects to generate year-on-year profit growth in the new financial year and is comfortable with the current analyst consensus for underlying pre-tax profits of £53.3 million.

‘Looking beyond FY24,’ said Halfords, ‘we expect strong profit growth in FY25 as we take a significant step towards our mid-term expectation of £90 million to £110 million underlying PBT, as outlined at our Capital Markets Day in April 2023.’

CEO Graham Stapleton explained that Halfords’ focus has been ‘on supporting both customers and colleagues through the cost-of-living crisis. Investment in competitive pricing and the value for money offered by our Motoring Loyalty Club, has enabled us to help more people with their motoring needs. This has led to an outstanding sales performance and significant market share gains.

‘Over the year we have also made great progress against our strategy, building a bigger needs-based services business, with over three quarters of our revenue now coming from motoring, and almost half from service-related sales. These results have been achieved despite significant inflation and other macroeconomic headwinds and are therefore a clear illustration of the ever-increasing resilience of our business.’

THE EXPERT’S VIEW

Begbies Traynor’s (BEG:AIM) Julie Palmer explained that hard-pressed consumers are looking for savings wherever they can, so Halfords isn’t selling so many discretionary items, ‘especially compared to the Covid boom times, when cash-rich motorists were treating their cars and bikes were flying out the door as people looked for ways to fill their new-found free time’.

In today’s tougher environment, ‘even sales of tyres are down as drivers count the pennies. But that’s something that will eventually have to change as people who depend on their cars can’t hold out for ever and have to spend on the rubber meeting the road to keep their vehicles legal.’

Palmer added: ‘Halfords is well-placed to benefit from drivers looking to make economies doing their own maintenance on vehicles where they can, and it has invested ready for a return of consumer confidence.

‘The market might be stalling now, but Halfords’ size and diversity means it is better placed than many rivals to see out the current bumpy road.’

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