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Halfords - One offs dampen broad based growth

Nicholas Hyett | 18 January 2018 | A A A
Halfords - One offs dampen broad based growth

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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: 156.90 | Buy: 157.30 | Change -4.40 (-2.73%)
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A relatively even split between Autocentres and Retail helped Halfords generate 3.2% revenue growth in the third quarter. However, this was slightly behind the growth reported over the first half.

The shares fell 0.8% in early trading.

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Our View

Former CEO Jill McDonald's 'Moving Up A Gear' strategy 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 strategy is simple. Up-skill the Halfords workforce so that they can deliver better service, reward them appropriately so they don't disappear with their new found skills, and create 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. Even here the group's service led offering seems to be paying dividends. Strong Click & Collect take-up is seeing 80% of customers coming into Halfords stores for advice and fitting of online purchases.

Halfords is also looking to steal a couple of tricks from its online rivals. It can now match 54% 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 task is not yet complete. With new CEO Graham Stapleton just days into the job, we hope he sticks to the essence of the plan and continues down the road Halfords is now on.

We'll have to wait for details of his strategy. In the meantime, the stock is trading on a PE of 11.3 times expected earnings, bang in line with its longer term average. The prospective yield is 5.2%.

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Third Quarter Trading Update

The Retail division saw revenues rise 3.3%, behind the 4.1% achieved for the year to date.

The slower rate of growth was driven by a slowdown in Motoring sales. That reflects the continuing decline in satnav sales while sales of children's car seats declined after a bumper year last year following changes to legislation.

However, cycling delivered a very strong performance with like-for-like sales up 7.8% as volumes increased despite an increase in prices.

The Autocentres business benefitted from like-for-like sales growth and new openings, with revenues up 1.9% in the quarter versus 0.3% for the year to date.

The UK sales environment is expected to remain subdued for the remainder of FY18, with full year profit before tax set to be broadly in line with current market expectations. Consensus is for the group to deliver around £73m.

New CEO Graham Stapleton started on 15 January.

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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.