Like-for-like (LFL) revenue rose 5% in the first 20 weeks of the year, from 4 April to 21 August 2020. That reflects strong cycling sales and improvements in overall retail sales as lockdowns eased.
Halfords expects underlying pre-tax profit to be £35 - £40m in the first half, but uncertainty remains for the second half of the year and profits could be "significantly lower" in that period.
The shares rose 2.7% following the announcement.
While airlines have been desperate for UK holidaymakers to get back in the sky, Halfords has been reaping the rewards of a nation taking to the roads in search of a getaway.
Demand for accessories like roof boxes have helped the group start to recover from the motoring-sales nadir of the lockdown era. Cycling sales have also seen exceptional growth as the public avoids public transport and wanted new ways to get out and be active. But that doesn't mean a profit boom is on the way.
As the winter months arrive there's usually a natural drop off in cycling and holiday-related sales, and the current economic outlook is iffy at best. That tends to mean discretionary spending gets squeezed and could make growth difficult to come by for the financial year as a whole.
The other challenge facing the group is the dawning digital age, which is seeing Halfords press on with plans to close around 80 sites this year. Streamlining the business and trimming excess weight is the right way to go in our view. And great strides have been made in the online business so far, with this now accounting for over half of sales.
Halfords will always see some level of demand for its physical shops too - people often want to talk to an expert when they're buying a new bike or dash-cam. Capitalising on offering a face-to-face service is an integral part of the strategy: Amazon might be less expensive, but it can't offer you an in-person expert.
There's also a big growth opportunity where cycling's concerned. At the moment this is a lower margin category compared to Motoring goods, but we view this as a profit-boosting opportunity over the longer-term, as the segment matures.
The balance sheet is in good health too. A net cash position for any retailer at the moment is good going, and we're particularly impressed with how Halfords has handled its stock management. A healthier balance sheet gives the group breathing room in these tricky conditions.
Overall Halfords is starting from a far sturdier base than peers, and its end markets have shown considerable resilience so far. However, from here it will need to focus on how to get the top line moving over the longer-term, and how to best prepare for a real squeeze in discretionary spending. Halfords has a lot of the right ideas and some great opportunities, but we'll need to see further evidence of strong execution this year before turning more positive. That's especially true once the higher-than-average share price valuation is taken into account.
Halfords key facts
- Forward P/E ratio: 17.1
- 10 year average forward P/E ratio: 11.4
- Prospective yield: 2.0%
Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
20-week trading details
Within Retail, like-for-like (LFL) sales were up 7%, while overall revenue rose 3.8%. That reflects significant improvements in cycling sales - up 59.1% on a LFL basis. This offset declines in motoring sales during lockdown, although motoring sales have improved quickly as conditions eased (at the end of Q1 motoring sales were down 45.4%, but for the 20 week period the decline has reduced to 28.6%). Retail is being buoyed by staycation trends, as well as increased demand for things like electric bikes as people avoid public transport.
Online sales rose 160%, and now account for around 54% of total revenue.
Autocentre revenue was up 30.2%, which again shows fast improvements in the seven weeks since the end of the first quarter, driven by acquisitions. Service related sales rose 6.3%, while B2B rose 25.9%. On a LFL basis, revenue fell 7.6%, but has been back in positive territory since June.
Group gross margins have improved, helped by recent growth in motoring services which is more profitable. Halfords is on track to improve cycling gross margins, which have been held back by the rapid pace of growth in that segment.
As at 21 August Halfords had a net cash position of £105m, which was a year-on-year improvement of £70m. This reflects lower cycling stock levels as well as better stock management.
Looking ahead to the full year, the group said "like most retail businesses currently, relatively high operating leverage and a highly uncertain trading environment mean that the range of possible profit outcomes for H2 is very wide."
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. 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.
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