Halfords' revenues climbs but affected by weak pound

Bike and motor retailer Halfords’ half year revenues were up, but it was affected by the recent weak sterling against the dollar.

For the six months ended 30 September, like-for-like revenue grew 2.2% to £567.3m.

LFL revenue for retail rose 2.4% to £489.1m and LFL revenue from autocentres increased by 0.9% to £78.2m.

Operating margins were affected by investments, marketing, and foreign exchange rates as the average hedged dollar rate declined from $1.56 to $1.46 accounting for about 100 basis points of gross margin, which will be mitigated over time

The company said that with the depreciation of sterling against the dollar it brings cost headwinds, but it has “developed a number of mitigation initiatives”, while it anticipates profit before tax for the 2017 financial year to be in line with market expectations.

There was revenue growth across all areas of the business, with “robust retail sales improving through the period”, with motoring up 1.1% and cycling higher by 4.6% on a LFL basis, with total cycling sales increased by 15.4%. Online sales climbed 30%.

Revenues were up 25% in the Tredz & Wheelies business year-on-year since the May £18.4m acquisition.

Earnings before interest, tax, depreciation and amortisation (EBITDA) edged higher 8.3% to £57.1m, compared to the same period last year.

Profit before tax soared 15% to £39.1m.

At the end of September the company had free cash flow of £24.2m, up 24.1% and net debt of £64.8m, which is 0.6 times EBITDA.

However, basic earnings per share, before non-recurring items, fell 13.5% to 16.6p and basic earnings per share, after non-recurring items, decreased by 17.2% to 15.9p.

During the six months the company invested in services, which delivered an increase in service-related sales by 13.8%, with progress in Single Customer View as 31% of sales are now matched to customers.

Chief executive Jill McDonald said: "Our service-led offer is a key point of difference for Halfords and continued investment in this area has led to good progress in service-related sales.

“I'm pleased with the momentum that is building as we implement our strategy. There is demonstrable progress across the plan, with more to come in the year ahead, and the benefits for colleagues and customers are starting to come through.”

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said the company has increased focus on delivering a service as well as a product to customers seems to be attracting more people, which is good news after a couple of tough years.

“Unfortunately at the moment those new customers aren’t proving profitable, with top line growth struggling to put the brakes on bottom line contraction.

To be fair to Halfords a large part of that is down to issues outside its control, currency and the National Living Wage have both hit the group hard. But the increased investment in staff and stores, ensuring they’re able to offer customers the expertise that Halfords are now aiming for, is also expensive.

“Halfords has yet to show that that what is clearly proving a popular move with customers will also prove a profitable one for shareholders.”

The company declared a dividend of 5.83p per share, a 3% increase from last year.

Shares in Halfords were down 3.83% to 330.52p at 0805 GMT.