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Halfords - Strong Retail performance leads growth

Nicholas Hyett | 5 September 2017 | A A A
Halfords - Strong Retail performance leads growth

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Halfords Ordinary 1p Shares

Sell: 400.20 | Buy: 403.80 | Change -24.20 (-5.68%)
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A brief trading update covering the first half of the year shows revenue rose 4.8% at Halfords, driven by a strong performance in the Retail division. Like-for-like (LFL) revenues rose 2.7%.

The shares rose 1.9% following the announcement.

Our View

Halfords CEO Jill McDonald has grasped what many UK retailers have failed to. In order for bricks & mortar retailers to compete with cheaper online rivals they have to offer something digital rivals can't - face-to-face, hands on service and expertise.

The 'Moving Up A Gear' strategy is primarily about up-skilling the Halfords workforce so that they can deliver that service, rewarding them appropriately so they don't disappear with their new found skills, and creating a store environment in which customers are happy to linger.

The acquisition of online cycle specialists Tredz and Wheelies has significantly boosted the group's online sales and even here the group's service led offering seems to be paying dividends. Strong Click & Collect take-up is seeing customers coming into Halfords stores for advice and fitting of online purchases.

Halfords is even looking to steal a couple of tricks from its online rivals. It can now match 50% of sales to a specific customer, up from just 3% in November 2015, so if you bought a child's bike recently, expect an email offering you the next size up in the not too distant future.

However, it has taken a long time for Halfords to sort itself out and the job is not yet complete. With Jill McDonald off to M&S's Clothing, Home and Beauty division, we just hope that Halfords is able to stick to the plan and continue down the road she's put it on. For now, the stock is trading on a PE of around 10.4 times expected earnings, with a prospective yield of 5.8%.

20 Week Trading Update

Group revenue benefited from a 6.2% increase in Retail revenue, 3.5% on an LFL basis.

This reflected particular strength in cycling sales over the summer, up 5.2% LFL. Growth was good in premium bikes and accessories/services, where electric bikes and cycle repair services were highlights. Cycle Republic and Tredz also grew strongly.

The Retail motoring business saw sales rise 2.3% on a LFL basis, driven by growth in fitting services and associated parts, dash cams, camping, roof boxes and cycle carriers.

Service-related Retail sales across both cycling and motoring rose 18.3%.

The Autocentres business saw LFL sales fall 1.4% and 2% on a LFL basis - in line with previous guidance - with gross margin improving year-on-year.

The group expects to deliver full year profit before tax in line with market expectations, with guidance remaining unchanged.

Commenting on the results CEO Jill McDonald said, "A combination of good planning and execution meant that we optimised sales from the staycation summer . . . Our foreign exchange mitigation plans are working in line with expectations and we are well prepared for the peak trading period through winter."

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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.