Halfords shares dive as it revises profit forecasts

Motoring and cycling product and service retailer Halfords Group updated the market on its trading performance for the 14 weeks ended 4 January on Thursday, reporting a 1.7% fall in like-for-like group revenue.

The FTSE 250 company said that was made up of 1.4% growth in autocentres, offset by a 2.2% decline in like-for-like revenue in retail, which its board said reflected the impact of mild weather and weak consumer confidence.

Retail motoring sales were down 3.4%, which Halfords said reflected declines in weather-related and discretionary products and services, although that was partially offset by growth in non-weather-related motoring consumables.

Retail cycling sales were broadly flat, slipping by 0.3% on a like-for-like basis, on a strong comparative of 8% growth.

Halfords said growth in cycle accessories and children's cycling was offset by a decline in the more discretionary and bigger-ticket adult bikes.

Autocentres like-for-like growth was 1.4%, which reportedly reflected “broad based growth” in services and maintenance work.

Continued positive progress was reported in that division’s operational improvements.

Group online sales, which represented 20% of total sales, grew by 7.5%, with more than 80% of Halfords.com orders collected in store.

Looking ahead, Halfords said operating costs and gross margins had been “well controlled”.

However, reflecting the impact on revenue of the mild weather and weak consumer confidence, the board said it now anticipated underlying profit before tax for the 2019 financial year to be in the range of £58m to £62m.

The board reported that it believed consumer confidence could remain weak into next year as well, and as a result anticipated 2020 financial year profit before tax to be “broadly flat” on the revised 2019 expectation.

It did note that the group was in an “uncertain environment”, and said it would provide an update alongside its preliminary results in May.

Halfords remained cash generative, and had a “strong” balance sheet.

The board said it expected free cash flow for the full year to be up on last year, and it remained confident that it would grow free cash flow over the medium term, supported by positive early progress in its cost and cash efficiency programmes.

That, combined with positive longer-term prospects for the group, would give the board confidence to maintain its dividend policy.

“This has been a challenging third quarter for the business, driven by exceptionally mild weather and ongoing weak consumer confidence,” said chief executive officer Graham Stapleton.

“Together, these factors have led us to reduce our profit expectations.”

Stapleton said that while it had been a difficult period, the company had managed costs and margin well and its free cash flow remained strong.

“Halfords is a robust business and we firmly believe that the strategy we outlined in September is the right direction for the business.”