Halfords tumbles as it warns of lower profits ahead

Halfords shares were well into negative territory on Thursday after it warned of a 23% fall in profits this year amid surging inflation and economic uncertainty, despite reporting strong full-year growth.

The London-listed automotive and cycling retailer said revenue was up 6% year-on-year to £1.37bn, while underlying profit before tax was £89.8m - up 57.8% over the 2020 financial year, but down 9.7% year-on-year.

It ended the 52 weeks to 1 April with cash of £46.1mm, but overall net debt of £344.9m after IFRS 16 lease debt.

The board proposed a final dividend of 6p per share.

Looking ahead, Halfords said forecasting the 2023 financial year with any degree of certainty was “particularly challenging” at this point.

It said it expected underlying profit before tax to now be in the range of £65m to £75m, but its board acknowledged the uncertainty that the year was likely to bring.

“The strength and resilience of this performance is a great illustration of Halfords’ transformation over the past two years,” said chief executive officer Graham Stapleton.

“Our strategic shift towards motoring services has delivered higher, more predictable and more sustainable returns, and our acquisitions of both National and Iverson Tyres during the year mean that we are now the UK’s largest motoring service provider.

“Motoring now represents over 70% of Halfords’ total revenue, and the fact that our products and services in this category tend to be needs-based rather than discretionary will help us to navigate our way through the well-documented macroeconomic uncertainty that we are currently seeing.”

Stapleton said the firm was “determined to do everything that we can” to help customers during the cost-of-living crisis, through initiatives such as its recently-launched Motoring Loyalty Club and our second hand bike exchange.

“We are continuing to play a key role in helping consumers to choose electric forms of transport and are constantly investing in the training and upskilling of our technicians in this critically important area.

“Sales of e-bikes, e-scooters and accessories were up 74% on two years ago, and servicing for electric cars in our garages was up 140% year-on-year.

“While rising inflation and declining consumer confidence will naturally present short-term challenges for any customer-facing business like ours, we remain confident in Halfords’ long-term growth prospects due to our service-led strategy and the enduring strength of our brand, people, products and services.”

Matt Britzman, equity analyst at Hargreaves Lansdown, said falling demand and "significant" cost inflation were being blamed for the expected to 23% fall in profits next year.

"With a cost-of-living crisis hitting consumer wallets, demand for higher ticket items is heading for trouble and we’re seeing a continued unwind of some of the lockdown tailwinds, such as the cycling boom that helped performance last year.

"Halfords are in the midst of a strategy change and several acquisitions have helped push motoring revenues up to around 70% of total sales.

"The less discretionary nature of motoring services should help give some protection from cash strapped consumers closing their wallets," Britzman explained.

"However, the pain is coming a little too soon, with a number of newer acquisitions yet to be integrated and the new strategy still a way off being complete.”

At 0941 BST, shares in Halfords Group were down 15.7% at 166.5p.

Reporting by Josh White at Sharecast.com.