Halfords (HFD) Ordinary 1p Shares
HL comment (8 September 2021)
Halfords' revenue rose 10.5% in the first 20 weeks of the financial year. Compared to pre-pandemic trading, revenue rose 18.7%, or 16.8% on a like-for-like basis. That reflects double digit growth in all business areas.
The group warned of challenges, including cost inflation, freight disruption and capacity issues, as well as recruitment challenges among technicians and HGV drivers.
Halfords still expects to achieve full year pre-tax profit of over £75m.
The shares fell 1.7% following the announcement.
Halfords performed exceptionally during the pandemic, and it only seems to be gaining momentum. Double digit boosts to revenue aren't something many retailers - especially those with a bricks and mortar presence - can boast.
While its status as an essential retailer and the staycation boom were tailwinds outside its control, we think that performance highlights fundamental strengths.
Servicing an unprecedented boom in cycling revenue is a triumph of inventory management. That's been helped by the rapid shift to online sales, which rose over 100% for the full year. Given the increasing importance of digital sales it should be no surprise the physical estate is being streamlined - with an additional 42 shops closed in recent times. Remaining stores are focused on delivering what online rivals can't: click & collect and a face-to-face service from an employee who knows what they're talking about.
The success of the new 'Mobile Expert' offer, which sees Halfords technicians come straight to your door, is testament to what the combination of the right product and staff expertise can achieve if delivered at the right time in the right place. The offer is in its infancy, but growth is impressive and has the potential to keep expansion ticking over while also encouraging cross-selling into the Autocentres themselves. The fact both Autocentre MOTs and Mobile Experts can be booked directly from the retail website should help the group make the most of its large retail customer base.
We're also reassured by the fact the balance sheet is in good health. That financial strength means the ordinary dividend is back on the table, but any extra surplus cash will first be funnelled to protecting the balance sheet and investing for growth. Dividend growth is therefore unlikely to shoot the lights out.
We're supportive of that move, because plenty of uncertainty remains. Supply constraints - especially in cycling - and recruitment challenges across garage and mobile van technicians mean sales growth is slower than it might otherwise be. We also worry what the next important summer season will look like as the world gets back to normal and staycations become less popular.
Halfords' end markets have shown considerable resilience. We think the mix of online sales portal and real-world expertise is a winning formula long term. That should help it survive the turmoil engulfing much of the retail sector. We've noticed an increased air of caution in management's commentary though, so some ups and downs are likely.
Halfords key facts
- Price/earnings ratio: 11.2
- Ten year average Price/earnings ratio: 11.8
- Prospective dividend yield (next 12 months): 2.9%
All ratios are sourced from Refinitiv. 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 update (percentage growth figures are compared to pre-pandemic sales)
Retail revenue rose 7.8%, 17.1% on a like-for-like (LFL) basis. LFL growth reflects customers transferring from closed shops. Increased staycations helped the sales of touring products, and Motoring LFLs were up 11.2%. Cycling grew 24.2% on an LFL basis, including a strong increase in electric bikes.
Halfords said: ''the global cycling supply chain continues to experience considerable capacity constraints, leading to low availability of bikes throughout the period''. The group expects supply chain issues to continue for some time.
Overall online sales rose 83%.
Autocentres revenue rose 86.2% (LFL 15.5%), reflecting increased scale and improved focus on B2B. The Mobile Expert Vans recorded growth of 61.7%. There have been ''recruitment challenges'' and Covid-related absences for garage and Mobile Expert Vans technicians, which lowered sales.
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 Refinitiv. 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 disclosure for more information.
Previous Halfords updates
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