Halfords narrows full-year profit range, shares tumble

Halfords tumbled on Wednesday after the motoring and cycling products retailer narrowed its guidance range for annual profit as it highlighted a softening in demand for big-ticket discretionary categories.

In its results for the 26 weeks to 29 September, the company said pre-tax profit rose 3.3% to £19.3m, with underlying pre-tax profit up 15.8% at £21.3m. Meanwhile, revenue was 13.9% higher at £873.5m, with like-for-like sales growth of 8.3%.

Halfords said its performance varied across underlying markets. Needs-based categories, such as retail motoring and motoring services, saw strong growth, in line with expectations. However, trading in discretionary markets such as cycling was challenging and below expectations due to the "well documented consumer environment".

While the B2B businesses and needs-based categories continue to show very strong growth, Halfords said trading patterns have been volatile across the first half of the year. In the last couple of months in particular, it has seen some market softening in discretionary big-ticket categories, which has been reflected in slower LFL sales growth.

"We continue to expect FY24 profit delivery to be second half weighted as inflationary headwinds annualise, coupled with the delivery of the balance of FY24 targeted cost and efficiency savings of £30m," it said. "It does, however, remain challenging to predict whether the recent trends in discretionary categories will continue."

As a result, the company now expects FY24 underlying pre-tax profit of between £48m and £53m, down from previous guidance of £48m to £58m.

Chief executive Graham Stapleton said: "Despite the challenging and volatile trading environment and slower than expected recovery in some of our markets, we have made a good start to the year, with substantial sales and profit growth, and increased market share across the business. At the same time, we supported our customers through the ongoing cost of living crisis by delivering great value - when they need it most.

"In the face of continuing economic uncertainty, we remain fully focused on optimising every element of the business, and I’m particularly pleased with the very strong performance of Autocentres, where we are delivering significantly improved returns. In light of this, we are accelerating capital investment in the garage services operating model and customer experience in ten towns in the balance of this financial year."

At 1450 GMT, the shares were down 19% at 184.60p.

Russ Mould, investment director at AJ Bell, said: "A profit warning less than a fortnight since takeover talk surrounded Halfords certainly changes the narrative. No sooner were investors excited about the prospect of Halfords buddying up with van hire group Redde Northgate, we’ve now got reduced earnings guidance amid weak sales of bikes and tyres. The share price has understandably taken a beating.

"Apart from a fruitful period during the start of the pandemic where everyone was clambering to get hold of a bike, cycling hasn’t been kind to Halfords for a long time. One has to question the long-term future of bikes within the business.

"While it has a competitive strength in being one of the few national brands to sell bikes, thereby making it front of mind for consumers looking to buy such products, this remains a highly discretionary purchase and therefore earnings visibility is poor.

"The future for Halfords seems to be in motoring services where there is a more of a defensive element to its earnings. People rely on their cars to get from A to B and if something goes wrong most have no choice but to pay for repairs. On the whole this is non-discretionary spend and that creates opportunities for Halfords to find more ways to earn from drivers."