By Geoffrey Smith
Investing.com -- Halfords (LON:HFD) warned that its full-year underlying profit will be at the lower end of its forecasts, as high inflation and the economic slowdown hit sales at its cycling business.
Halfords shares, which lost over two-thirds of their value after peaking in summer last year but have recovered around one-third of those losses since the start of October, fell 12% at the opening in response but recovered slightly to be down only 8.5% by 03:30 ET (08:30 GMT).
The U.K.'s biggest chain of cycling and motoring gear said that while trading has been strong in its "needs-based" areas since the end of September, "the more discretionary areas have softened." Revenue at its signature cycling shops fell 7.1% on the year in the six months through September, taking the edge of a sharp acquisition-fueled rise in its Autocentres business.
Halfords had profited from a cycling boom during the pandemic, as more people chose to shun public transport and focus on exercise regimes. However, it has invested more resources in the last couple of years in building up its network of car components and accessories, notably through the acquisition of Lodge Tyre last month, which made it the U.K.'s biggest commercial tire supplier, and pushed the share of motoring to over three-quarters of group sales. It said on Wednesday that it is likely to beat its 1 million target for membership of its Motoring Loyalty Club, noting that this already stood at 980,000 at the end of September.
The company said revenue in the six months through September was up 10.2% from a year earlier, although like-for-like sales were down 1.5% against a tough comparison base. Pretax profit fell by half from a year ago to £29 million, with gross margins at both the Autocentres and retail coming under increasing pressure from high inflation.
On a brighter note, it said that it was well positioned for the coming year, with no debt and with 98% of its needs for foreign currency hedged at a rate of $1.32 to the pound, well above sterling's recent trading levels. That will reduce the pressure for it to raise prices further at a time when household incomes are being squeezed not only by inflation, but also by a big tightening of fiscal policy through tax increases and spending cuts.