Halfords strives against currency headwinds

Halfords sales have gone up a gear but currency headwinds are sending profits into reverse. Revenues rose but profits fell as sterling weakness took a chunk out of margins. Investors liked the higher sales though and the stock is up more than 1% in early trading.

Revenue growth remains solid but higher costs are denting earnings in a big way — £14m before ‘mitigation’, which is more than double the fall in earnings from last year — underlying profit before tax of £75.4m was down £6.1m year-on-year. Profits after nasties were down more than 10% at £71.4m as retail margins slipped 260 bps to 48.6% from 51.2% a year before.

This was not much of a surprise, however, as Halfords had reported in November a steep dive in profits off the back of the fall in sterling.

Currency headwinds aside, the focus on premium cycling brands is working as revenues are up despite no real improvement in volumes. Halfords expects growth in cycling of 3–5% per annum in the medium term. Like-for-like cycling sales rose more than 5%, driving group LFL revenues 2.7% higher. Noticeably on a total basis cycling sales were up nearly a fifth as the Tredz acquisition is paying dividends.

Looking ahead there are hopes that the retailer will actually benefit from the weak pound as more people stay in Britain for holidays. Staycations might help, as will the focus on higher value bikes. Investors should also note that the worst of the fall in sterling may be over. So barring a tumultuous start to the Brexit negotiations, currency headwinds should abate towards the end of the year.

The share price has recovered a little since last June’s fall when investors shied away from its exposure to the pound and UK consumers, but the stock remains down by around a fifth in the last 12 months.


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