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Halfords - LFL growth grinding to a halt

Nicholas Hyett | 14 July 2016 | A A A
Halfords - LFL growth grinding to a halt

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No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Halfords Ordinary 1p Shares

Sell: 277.00 | Buy: 278.00 | Change -14.00 (-4.79%)
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Halfords shares are down 1% this morning after the release of first quarter trading numbers, showing a 2.1% increase in revenue, down 0.6% on like-for-like (LFL) basis.

Retail saw a 1.2% decline in LFL sales while Autocentres delivered 3.1% growth. Adjusting for Easter, which fell in Q1 last year, Group LFLs were flat while retail declined 0.2% and Autocentres grew 1.7%.

Within Retail, Motoring saw growth of 0.6%, led by sales of bulbs, blades, batteries and double digit growth in child safety seats - although continuing declines in satnav sales resulted in a 4.2% LFL decline in in the Car Enhancement category. Cycling struggled as a result of the timing of Easter and poor weather in April and late June, resulting in a 4% decline in LFLs - despite good sales growth in premium bikes.

Autocentres delivered an 11th quarter of LFL growth, boosted by improved tyre sales, enhanced opening hours and growth in online sales.

Outlook:

A Dollar/Sterling exchange rate of 1.45 is expected to have a £3m impact on FY17 profits. The group now has 75% of its FY17 purchases hedged at around that point, meaning that if the USD:GBP rate continues to trade below 1.45 it may have a small further impact later in the financial year.

Chief Executive, Jill McDonald, said "While the recent decision to leave the EU does create uncertainty, we are well-positioned as a business and focused on delivering sustainable long-term growth."

Our view:

Halfords have strong positions in the growing cycling and motoring markets. This should mean that the group is well-placed, however Bloomberg analyst forecasts suggest only steady, muted growth over the coming years.

The problem is that historically, the group hasn't got a sales record to justify more lofty expectations. Sales have been held back for several reasons, not least the high staff turnover. This means that all too often staff haven't had the experience and knowledge to provide the advice customers are seeking. The store environment was not conducive to making shoppers want to linger either. However, the group is trying to rectify these failings, with an extensive programme of investment in staff and stores alike.

Halfords are also looking to strengthen the relationship with existing customers, and promote the Halfords brand. The group is getting to a position where it can match more retail sales to individual customers, and this information, together with the growing customer database, should mean that the group can target offers more intelligently.

If CEO Jill McDonald can really move the dial on these issues then Halfords could live up to its promise, but history, and today's numbers, suggests that chickens should not be counted until hatched. In the meantime, the stock is trading on a PE of around 10.5x consensus earnings, with a yield of over to 5%.

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.