Halfords sales swell thanks to staycations and 'do it for me' customers

Retailer Halfords Group reported like-for-like sales largely as expected for the first 20 weeks of the year, in the last results before chief executive Jill McDonald departs.

Total revenue in the 20 weeks to 18 August grew 4.8% year-on-year, with sales rising 6.2% in retail but dropping 1.4% at the Autocentres business.

LFL sales for the group were up 2.7% as retail LFLs increased 3.5%, which was very slightly shy of the consensus forecast of 3.6%.

Autocentres LFL sales fell 2.0% as previously guided due to a decision to stop participating in a tyre affiliate programme as the net profit was insufficient, though this has meant gross margin was higher.

Within retail, cycling sales were up 5.2%, boosted by growth of premium bikes, a growing range of electric bikes and popularity of cycle repair services, while motoring accessories grew 2.3%, driven by demand for fitting services and associated parts, dash cams, camping, roof boxes and cycle carriers that was supported by an increase in staycations amid the weak pound.

Plans to mitigate foreign exchange fluctuations were said to be working in line with expectations, which analysts have suggested could filter through to profits in coming periods.

McDonald, who leaves next month for Marks & Spencer, said the group was well prepared for the peak trading period through winter, when an accelerated roll-out of a new store format is also planned, and expectations for full year profit before tax remained in line with current consensus expectations of £73.4m.

"A combination of good planning and execution meant that we optimised sales from the staycation summer, with strong growth in camping, roof boxes and cycle carriers," she said.

"This complemented our service-related retail sales, which grew significantly faster than our total sales, as we continue to demonstrate our relevance to the growing 'do-it-for-me' customer."

Halfords stores offer to fit replacement batteries, windscreen wiper blades and light bulbs, while new motoring services launched for Autocentres during the period include AdBlue top-up for diesel owners, repair of car key fobs and fuse fitting.

Shares in Halfords rose almost 5% to 329.7p in the first hour of trading on Tuesday, having last month fallen to a long-term low around 310p.

Analyst Kate Calvert at Investec said the trading update represented a good start to the year in a period that was up against difficult comparatives from the prior year's major cycling discounts.

"This seems to suggest that the current strategic focus on service and recent IT investment is paying off. If it were not for material FX headwinds in FY18, profit growth would have resumed," she said, adding that the FX mitigation plans "could drive material future upgrades" with a potential £40m profit upgrade gift for the new CEO if the currency impact is fully recovered as management seems to believe it can be.

"The lack of news on a new CEO may weigh on the shares short term, but continued good underlying trading seems to suggest that strategic focus on service and efficiency benefits from IT investment is working – with risk to consensus forecasts on the upside."

Nicholas Hyett at broker Hargreaves Lansdown said the ‘Moving up a Gear’ strategy -- which was put in place by McDonald's predecessor Matt Davies -- looks to have got Halfords’ sales firing again.

"Retail growth is strong, and while a sceptic might put that down to the group benefitting from what it has described as a ‘staycation summer’, the revamped and refocused offer seems to have got Halfords into exactly the right place to meet customer needs," he said.

He noted that better use of customer data means the group can improve marketing efficiency and drive incremental sales, as 85% of online sales are collected in store so the group should even be able to cross-sell its services to digital customers, providing an edge over pure online rivals.

"Amidst what are definitely positive results, our one concern is that, with Ms McDonald departing in a matter of months, the new CEO will want to stamp their mark on the business at a time when what looks like a successful strategy is still bedding in. We wouldn’t want to see any fancy manoeuvers thrown in to spice up a simple gear change.”