7th Sep 2022 10:37
(Alliance News) - Halfords Group PLC's "solid" update was well received on Wednesday, with analysts keen on the firm's service-led direction, but want to see it grow further.
The motor and cycling products retailer said its revenue growth in the 20 weeks to August 19 was helped by product price cuts, and reconfirmed its annual profit target.
Shares in Halfords shot up 14% in London on Wednesday mid-morning to 151.91 pence. In 2022 so far, however, the shares are down a steep 57%.
"Shares in Halfords have jumped this morning thanks to an upbeat trading statement with the retailer achieving near double-digit revenue growth for the period and sticking to its profit guidance," Victoria Scholar, head of investment at Interactive Investor, said.
Total revenue in the 20-week period was up 9.2% year on year, but like-for-like sales were down 1.9%. Halfords pinned the revenue slowdown on a surge in sales when the UK emerged from its final Covid lockdown.
Scholar continued: "Despite this, shares are still down by 60% year-to-date with shares under pressure since June of last year. The company fared very well during the pandemic thanks to the boom in cycling. However, its warning that inflation was denting earnings and demand in June sent shares tumbling as the cost-of-living crisis weighs on the business. The shaky macro backdrop continues to be a major headwind for Halfords."
Like-for-like Autocentres revenue was up 19%, boosted by its expanding car repairs business, but Retail revenue fell 7.1%.
In December last year, Halfords grew its Autocentres operation with a GBP62 million takeover of Axle Group, owner of the National tyre servicing brand.
"We are working extremely hard to help our customers with the cost-of-living crisis and have dropped prices across nearly 2,000 motoring essentials, ensuring that products remain accessible and affordable for all," Chief Executive Graham Stapleton said.
The CEO also noted over 70% of the firm's sales now come from its motoring products and services.
"The fact that this area of spend tends to be more needs-based rather than discretionary is leading to a very resilient group performance, despite the wider macroeconomic uncertainty," Stapleton added.
Liberum said the "resilient" update is "encouraging".
"Cycling has proved somewhat more resilient than expected and all divisional sales are materially ahead of pre-Covid levels. Strategic progress is also encouraging, including service related sales at double their mix versus pre-Covid," Liberum analyst Adam Tomlinson said.
"The shares have de-rated materially since the highs of mid-2021. We like the service-led strategy, the growing mix of defensive and higher margin revenues and strong balance sheet, which will support further M&A in garages and an attractive dividend yield - but with earnings momentum on a negative trajectory year on year, we remain 'hold' until greater forecast confidence returns."
Looking ahead, Halfords has guided for its annual underlying pretax profit to be between GBP65 million and GBP75 million. Last year, it posted underlying pretax profit of GBP89.8 million. The guidance was dropped by about 15% with the release of its interim results back in June.
By Paul McGowan; [email protected]
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