Halfords on track for £100m profit as cycling division keeps the wheels turning
Halfords this morning said that it was on track to post full year profit of £90m to £100m as a pandemic-inspired cycling boom continued.
That’s after paying back £10.7m in furlough income, as the firm announced that it would do this morning.
The firm’s shares rose 17 per cent on the back of the announcement.
If Halfords follows through on its guidance, it will almost have doubled profit over the last year. In July, it had warned that in the worst case scenario it could post a £10m annual loss.
Peel Hunt analysts raised their annual profit estimate to £95m from £76m after the unscheduled trading update and suggested that Halfords was likely reinstate its dividend sometime this year.
Like-for-like, sales at the firm’s cycling division have grown 43 per cent so far in the fourth quarter, with growth at performance cycling business Tredz up 60 per cent over the same period.
The continued strong performance across the division was considerably higher than Halfords’ overall effort, with group growth up 6.2 per cent.
It did, however, say that its autocentre business – which provides garage services – was showing signs of increasing market share, despite the fact that total journeys are currently down 40 per cent.
Reflecting this, the firm said that retail motoring sales contracted 14 per cent, with the sales of blades, bulbs, batteries and general maintenance products helping offset the slump in journeys.
At the start of the quarter, Halfords had warned that the regional lockdowns impacting motoring demand, as well as global container shortages and port disruption meant it was expecting a slow down in growth in the period.
However, it admitted that trading had been stronger than expected, though warned that sales for the rest of the quarter remained hard to predict given the current Covid-19 related uncertainty.
Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown, said: “Cycling sales have skyrocketed once again, and that’s despite Halfords having trouble getting hold of all the right stock. This suggests a deep-rooted and organic demand for cycling goods. This is hardly surprising given lockdown living and the closure of gyms.
“But what this means at the business level for Halfords is significant. As a less profitable faction of the group, growing cycling’s scale should bring incremental margin benefits.
“As the store estate becomes more streamlined, cycling sales could be more insulated from a reduction in shop numbers too. Cycling enthusiasts are more likely to travel a little further to get what they’re looking for, compared to someone that’s after a new wiper blade.”