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Halfords - A gold medal summer

Nicholas Hyett | 6 September 2016 | A A A
Halfords - A gold medal summer

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Halfords Ordinary 1p Shares

Sell: 305.60 | Buy: 306.20 | Change -3.40 (-1.10%)
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Halfords have reported a 4.8% increase in total revenue and 1.2% in like-for-like (LFL) revenue for the 20 week period to 19 August 2016. The shares rose almost 3% in early trading.

In the most recent 7 week period (also to 19 August), total revenue increased 9.3% (Retail +10.3% and Autocentres +2.3%) with LFL sales up 4.3% (Retail +5% and Autocentres flat).

Within Retail, the group saw LFL growth across all categories, with the exception of Car Enhancement (down 3.3%) where sat nav sales continued to decline.

Cycling put in a particularly strong LFL performance in the latter part of the period (up 12.5% in the 7 weeks to 19 August as opposed to a 4% decline in the preceding 13 weeks) resulting in overall growth of 1.9%. Sales were boosted by new ranges, deeper promotion, the launch of the Cycle Republic website and acquisition of Tredz.

Guidance for the full year remains unchanged.

CEO, Jill McDonald, commented:

"Good growth in Cycling sales during the peak summer period was supported by new ranges, strong promotional activity, good weather and the success of Halfords' Olympic cycling heroes. We continue to make good progress on our strategic initiatives; we can now match 25% of our Retail sales to specific customers compared to only 3% last year."

Our view:

Halfords has strong positions in the growing cycling and motoring markets. This should mean that the group is well-placed, but unfortunately the group hasn't got a sales record to justify lofty expectations.

However, today's results are certainly a step in the right direction. Compared to 2012, the group has been low key about the importance of a strong Olympics performance, but whatever the cause, cycling sales have improved markedly, while Autocentres continue to deliver steady growth.

In the past 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, and rising service sales are a sign that it may be making some headway.

Halfords is also looking to strengthen the relationship with existing customers, and promote the Halfords brand. The group's rapidly growing ability to match retail sales to individual customers, together with a growing customer database, should mean that it 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. Today's numbers could be the first green shoots, but they are really limited to just a 7 week period over the summer (with the group benefitting from favourable weather and an Olympic boost). We will watch with interest to see if they can be replicated at the interim stage (covering the 26 weeks to 30 September).

In the meantime, the stock is trading on a PE of around 12x consensus earnings, with a prospective yield of 4.5%.

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.