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Halfords - new strategy announced

Charlie Huggins | 12 November 2015 | A A A
Halfords - new strategy announced

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Halfords Ordinary 1p Shares

Sell: 281.60 | Buy: 282.20 | Change -4.60 (-1.62%)
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Halfords has released half year results and a new strategy designed to reinvigorate growth. Group revenue grew by 1.8% with like-for-like (LFL) sales up 1.7%. Profit before tax was down 5.9%, in line with the group's expectations, and the interim dividend rises by 2.9%. Cycling sales were sharply lower in mid-July to mid-August (as previously announced) but have improved in recent weeks. Less encouragingly, Halfords have warned that profit next year (FY17) will be broadly flat; analysts had expected pre-tax profit to grow by c. 8%. The shares fell by almost 10% in early morning trading.

Highlights:

Retail: sales were £458.0m, up 1.3% and 1.4% on a LFL basis. Cycling LFL revenues declined by 2.9% in H1. The second-quarter Cycling LFL was -7.6%. Most of the decline came in a 4 week period from mid-July to mid-August and reflected strong comparatives, poor weather and heavy discounting by competitors. Cycling sales returned to "marginal growth" in the final five weeks of the quarter. LFL sales of Car Maintenance products and services grew by 6.5%, Car Enhancement LFL revenues increased by 0.6% and Travel Solutions LFL revenues were 4.7% higher.

Autocentres: sales were £75.5m, an increase of 4.6% on the prior period with a LFL revenue increase of 3.3% (the eighth successive quarter of LFL growth). Online-booking revenues grew 12.9% in the period and represented 18% of sales. Halfords opened four centres and closed one in the period, and anticipates opening a further 10-15 Autocentres this year.

Moving Up a Gear

Jill McDonald became CEO in May 2015 and has today launched a new strategy: Moving Up a Gear. This has five key pillars:

  1. 1. Putting Customers in the Driving Seat - investing in customer data and insight capabilities to maximise the lifetime customer value.
  2. 2. Service - embedding the focus on customer service.
  3. 3. Building on Uniqueness - exclusive products, relevant innovation and unique partnerships, such as a new collaboration Sir Bradley Wiggins.
  4. 4. Better Shopping Experience - a seamless customer experience, online as well as in store.
  5. 5. Fit for the Future Infrastructure - moving from fixing the basics to improving efficiency and fulfilment.

Outlook

Halfords expects to out-grow its markets. However, the new strategy will require additional investments to modernise the business. Next year the group will also experience higher staff costs and depreciation charges. As a result, Halfords expect profit in FY17 to be broadly unchanged on FY16, with growth thereafter. The group intend to grow the dividend every year with coverage of around 2 times underlying earnings on average over time.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.