Thursday 10 November 2016 3:02 pm

A deflating day for Halfords shares as margins are squeezed

Shares in Halfords flopped five per cent today after revealing half-year profits had fallen by 12 per cent.

While the car parts and bikes retailer announced that revenues had increased by six per cent, gross margins – the amount of profit it makes from every item sold – at its retail outlets fell sharply.

Halfords' retail operations represent by far the company's largest division: its revenues grew from £458m to £489m.

The firm's autocentres raked in £78m during the six months to September, compared with £76m the year before.

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Nicholas Hyett, an equity analyst at Hargreaves Lansdown praised the increased in revenue numbers: “Halfords increased focus on delivering a service as well as a product to customers seems to be attracting more people through the doors. That’s certainly good news after a couple of tough years."

However, Hyett gave an insight into why shares had dropped like a flat tyre today: "Unfortunately at the moment those new customers aren’t proving profitable, with top line growth struggling to put the brakes on bottom line contraction."

Earnings at the Redditch-based company fell from £62m to £57m and profit before tax dropped from £46m to £41m.

Halfords' chief executive Jill McDonald also warned that the tightening of margins could continue as the pound cuts into the business' profitability. "[The] depreciation of sterling brings cost headwinds," she said.