Relief rally for Halfords as auto centers arm engines, profit forecast maintained
– Retailer sticks to profit forecast of £65-75m
– The Autocentres activity takes market share
– Bike sales plummet as cost of living crisis deepens
Shares in Halford (HFD) rebounded 14.5% to 152.8p after the recently unloved auto parts and bike retailer reported resilient trading in the 20 weeks to August 19, 2022 and maintained its profit forecast for the whole year.
Investors were pleased to hear that all Halfords division sales were well ahead of pre-Covid levels during the period, with the auto centers arm fueling performance, while bike sales improved held up better than expected in the face of the worsening consumer spending squeeze.
ON THE REASSURING ROAD
Halford said it was on track to deliver full-year pre-tax profits in the £65-75m range, implying a 22% mid-term decline in line with forecast revised down from June, after total sales rose 9.2% in the 20 weeks to August 19.
Automotive centers reported total year-on-year growth of 67.8% following a series of recent acquisitions and like-for-like growth of 19.4% amid further market share gains and growth continued demand for maintenance of electric vehicles.
Year-on-year like-for-like bicycle sales fell 12.7% due to a tough comparator in the prior year and reduced consumer discretionary spending, although the bicycle category proved more resilient than expected and that like-for-like sales over three years increased by 9.5%.
Halfords’ business statement also noted good progress on cost reduction and inflation mitigation targets and good product availability across the group, with stock levels in line with expectations.
“Over 70% of our sales now come from automotive products and services,” CEO Graham Stapleton said, “and the fact that this area of spending tends to be more needs-based than discretionary leads to very strong group performance. resilient, despite broader macroeconomic uncertainty.
Stapleton also warned that the cost of living crisis poses a threat to road safety as cash-strapped motorists keep cars running longer.
“Based on what we are seeing in our garages and given the ongoing problems with the supply of new cars, we believe that the average age of cars will very soon exceed the nine-year mark and could even exceed ten years before the cost. the crisis of life is easing,” Stapleton explained.
“Vehicle reliability has improved in recent years, but it is undeniable that older cars are more likely to develop faults, are more expensive to maintain and pollute more. This poses a risk to road safety, further strain on motorists’ wallets and a threat to UK emissions reduction targets.
Liberum Capital said Halfords’ material writedown since July 2021 “may appear severe given the progress of the service-oriented strategy, the growing combination of defensive earnings and higher margins and a strong balance sheet, which will support new garage mergers and acquisitions and an attractive dividend yield.’
The broker is sticking to its holding rating “with earnings momentum on a negative year-over-year trajectory” and “until the return of greater expected confidence.”
AJ Bell chief investment officer Russ Mold said: “The auto and bike retailer is notably sticking to its full-year guidance as it seeks to balance the need to mitigate the impact of rising input costs while providing its customers with decent value.
“People need their cars for day-to-day life, so spending in this area is likely to be more resilient than on more discretionary items and the strength of Halfords’ car services business reflects this. .”
Mold added: “Sales of cycling products, understandably, tend to be more cyclical and this area of the business is more like a worn out old racer than a shiny new carbon fiber road bike.
“At the moment, buying a new bike is unlikely to be a priority for cash-strapped households, but Halfords can afford to rely on the automotive sector and wait for the next raise. demand.”
DISCLAIMER: The financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) owns shares of AJ Bell.
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Date of issue: Sep 07, 2022