Cycle retailer Halfords (HFD) fought hard to protect its top line during the third quarter, which included the all-important festive trading period. Like-for-like sales stayed flat across the retail business but rose 1.9 per cent at the auto centres division – the ninth consecutive quarter of growth for that part of the business. For the year-to-date, group sales are up 1.3 per cent.
What's new
•13 per cent share price rally
•Recovery in third quarter cycle sales
•Strong performance across autocentres
That’s pretty good going considering the tough time Halfords had during the first half of its financial year. At the time of interim results in November, the shares plunged 9 per cent after the group reported pre-tax profits short of market expectations. Disappointing summer weather, tough comparative figures and industry-wide price deflation weighed heavily on organic growth, which fell 7.6 per cent in the second quarter alone.
By contrast, then, the third quarter looks like a vast improvement. Margins are still under pressure and are expected to fall between 25 and 75 basis points come the end of the financial year. But tight cost cutting means operating costs should only rise between 1 and 2 per cent compared to previous estimates of 2.5 to 3.5 per cent. All in all, bosses reckon full-year pre-tax profits should still fall somewhere in region of £78m-£82m.
The group also witnessed record online sales over the Black Friday weekend as well as the “highest ever day for total sales” on 23 December 2015. Annual results for the year ending 1 April will hit the market on 1 June 2016.
Investec says…
Buy. We look forward to an update on Halford’s capital structure on 1 June 2016. At the moment, given the stock’s valuation, we view the company as an attractive value play with the capacity to return surplus cash to shareholders in FY2017. That said, the job of modernising Halfords is far from complete but we have faith that the current strategy should return the company back to sustainable single-digit growth. In the meantime, it’s hoped that the current sales momentum will continue into the fourth quarter with the launch of the new Boardman range next week.
Peel Hunt says…
Hold. We were nervous coming into the third quarter update as the gods had conspired to make the weather conditions as unhelpful as they could have been for Halfords in the period. Bearing this in mind, flat sales in car maintenance against a very tough comparative was an excellent performance, driven largely by bulbs and wiper blades. We hope that this relative momentum Halfords has generated can be carried into 2016. In general though, we require more reassurance on trading fundamentals before we would get too heavily involved.
