Halfords shares plunge as profits knocked by customer spending cutbacks

A member of staff works on a bike at Halfords in Rugby, UK
Rising inflation saw more consumers flocking to Halfords' motoring loyalty club membership, but away from spending on cycling and 'discretionary areas'. Photo: Molly Darlington/Reuters

Shares at Halfords (HFD.L) slumped more than 6% on Wednesday after it revealed a sharp fall in interim profits thanks to the cost of living crisis sweeping across the UK.

The motoring and cycling retailer posted pre-tax profits of £29m ($34.56m) for the six months to 30 September, down from £57.9m the year before. Over a three-year period, the profit decline was £1.2m.

Revenues rose by 10.2% to £757m on the back of strong servicing and MOT numbers, representing growth on a three-year basis of 31.3%, or 13.3% when looking at a like-for-like comparison.

Service based sales at the group level now account for 42.6% of revenue, with growth both organic and acquisition based after Halfords' purchase of Lodge Tyre.

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However, the company warned that its full-year results would come in at the lower end of expectations as customers cut back on spending.

Halfords forecast full-year underlying pre-tax profits to be at the lower end of its previous guidance of between £65m to £75m.

Rising inflation saw more consumers flocking to its motoring loyalty club membership, but away from spending on cycling and “discretionary areas”.

“It remains challenging to predict consumer confidence for the remainder of 2022-23 but we don’t expect the challenges that businesses are facing to dissipate soon,” Halfords said.

“Halfords’ decision to focus on building its more reliable service revenue stream couldn’t have come soon enough, as consumers battling cost pressures are moving away from more discretionary spend,” Matt Britzman, equity analyst at Hargreaves Lansdown, said.

“This trend is particularly visible within Halfords’ once-booming cycling division, where sales are coming back down to earth after the pandemic boom.”

He added: "A slight weakening in the outlook for profit is never ideal, and markets have reacted badly, but weakness was bound to make its way through to performance given the scale of the macro challenges.

"Longer term, we’re supportive of the strategy shift, the old business was heavily reliant on cyclical revenue streams and recent changes increase exposure to more reliable sources of income — rarely a bad thing.”

Meanwhile, Peel Hunt analysts said the interim results and full-year guidance were as expected.

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It came as the retailer announced it was launching a recruitment drive in order to fill 1,000 technician roles over the next year.

The firm said it will be targeting retirees and more women as companies in Britain continue to struggle with hiring.

The UK unemployment rate hit its lowest level since 1974 in October, while the number of people leaving the workforce has risen.

Graham Stapleton, Halfords chief executive, said: “To help meet that demand, we are today launching a recruitment drive to fill 1,000 new automotive technician roles over the next 12 months. In particular, we are hoping to attract retirees back into the workforce, as well as increasing the number of women in technician roles.”

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