Wet weather, weak consumer confidence and an increasingly “challenging and competitive” cycling market have forced Halfords to issue its second profit warning in little more than a year.
More than a quarter was wiped off the retailer’s share price after it cut its profit guidance for the year to March 29 to between £35 million and £40 million, down sharply from between £48 million and £53 million.
Halfords said there had been “a further material weakening” since its last trading update in three of its four core categories — cycling, retail motoring and consumer tyres — resulting in a “significant” drop in like-for-like revenue growth in its retail business.
The company, which has more than 400 stores in the UK, said that the profit warning had been caused in part by poor returns in its cycling business, where sales had declined by 8 per cent in January compared with the year before. It attributed the drop to people wanting to buy new bikes on credit, which had led to weaker gross margins than expected. It also noted that promotional levels in the sector had increased.
Halfords said, too, that its cycling and retail motoring markets had been hit further by a combination of “continued weak customer confidence and unusually mild and very wet weather”, which had affected the number of customer visits to its stores and sales of categories such as winter and car cleaning products.
Advertisement
Volumes in the retail motoring market fell by 5.1 percentage points in January on a year-on-year measure, while the consumer tyres market dropped by 4.3 percentage points during the same period. Halfords noted that while the consumer tyres market had worsened last month, there had been a “strengthening service, maintenance and repair market and we continue to see good customer demand in this area.”
Halfords made its last profit warning just over a year ago, in January 2023. It said then that it expected to make profits of £60 million in the year ahead, from the £75 million it had announced previously. On that occasion, it blamed difficulties in hiring enough car mechanics.
The business’s fortunes have dipped since the pandemic, when it benefited from rising demand for bikes and from consumers, buoyed by higher levels of disposable income, fitting their vehicles with new tyres and other products.
Founded in 1892, the company employs about 12,000 people. As well as its retail stores, it has about 650 garages. The garage network has been expanded by the purchase of several car repair brands. In December 2021, Halfords bought Axle Group, the owner of National Tyres, for £62 million. It then acquired Lodge Tyre Company, based in Stafford, for £37.2 million, raising the number of garages under its supervision by 50.
Halfords said it expected the “same challenging market conditions to continue for the rest of [the fourth quarter], including through our peak Easter cycling period in March. We have continued to take decisive action on cost, but in the short period between now and the end of the financial year this will not be sufficient to offset the significant market deterioration we have seen.”
Advertisement
The retailer said it remained “cautious on market recovery in the short term and the current significant volatility in market conditions means that forecasting accurately is challenging”. It expects profit before tax for 2025 to be broadly in line with the forecast for 2024.
Adam Tomlinson, an analyst at Liberum, the broker, which has a “sell” rating for Halfords’ shares, said the profit warning was “clearly another disappointing update” and was an indicator that Halfords’ target to double profits over the medium term was “very stretching”. He added that there were “no visible positive catalysts at this stage” on the outlook for the company.
Investec’s analysts, however, said they were confident that Halfords’ cash generation “means it can ride out the current, very challenging, short-term market environment without impacting its strong balance sheet or its future [capital expenditure] plans”. They have a “buy” rating for the business.
The update sent shares in the business down by 53½p, or 26.7 per cent, to 147p.
