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Halfords drives strong sales growth, but economic headwinds could put the brakes on

Halfords has reported strong sales growth of 31% in the six months to September, hitting £766m, compared to pre-Covid levels.

All segments delivered like-for-like growth across the past three years, with Autocentres up 30.0%, Retail Motoring 10.2% and Cycling 8.6%. However, pre-tax profits declined 4% to £29m.

H1 FY22 was a strong trading period, with sales buoyed by the UK coming out of lockdown. In contrast, H1 FY23 has seen a significant decline in general consumer confidence, says the company. The LFL performance and total growth of 10.2% in retail motoring demonstrates some resilience in the company, but with profits already taking a hit, strong economic headwinds are likely to continue to take a toll.

Cycling in particular has borne the brunt of many of the economic headwinds, as a result of being higher ticket and more discretionary, and more exposed to many of the inflationary impacts including raw materials, freight and a weakening sterling to USD exchange rate. Market share growth has partially offset the impact of a softer market, caused by reduced discretionary spend, in cycling, but it still saw revenues drop year on year by 12.5%.

Graham Stapleton, Chief Executive Officer, comments: “This has been a period of strong strategic progress and resilient financial performance for Halfords. In such a volatile macroeconomic environment, our strategy of focusing on the kind of predictable and recurring revenue that comes from motoring services and needs-based products has never been more relevant. Once the acquisition of Lodge Tyre has annualised, Service-related sales will account for over 48% of our revenues and we expect this to grow to over 50% next year. Lodge Tyre will also mean motoring represents around 77% of total sales.”

Stapleton continues: “The success of our Motoring Loyalty Club is exceeding our expectations, as customers continue to be attracted by a range of discounts and offers that are aimed at helping motorists across the UK with the rocketing cost of running and maintaining a car. The club is playing a key role in the rapidly growing demand that we are seeing for vehicle servicing, MOTs, maintenance and repairs. In order to help meet that demand, we are today launching a recruitment drive to fill 1,000 new automotive technician roles over the next 12 months. In particular, we are hoping to attract retirees back into the workforce, as well as increasing the number of women in technician roles.”

Edison Group’s Director of Consumer, Russell Pointon, adds: “In spite of the turbulent economic environment, the company’s first half performance was boosted by its Service-related sales comprising 43% of Group revenues, compared to 23% in FY 20202.”

He adds: “In terms of costs, management sees good visibility on the second half, with utilities fully purchased at costs in line with FY22 and 98% of FY23 USD requirements hedged at $1.32. Cost and efficiency programs will exceed £20 million of savings when compared to last year, ahead of the £15 million target set out their preliminary results. H2 trading to-date has continued to be strong in needs-based areas, but the more discretionary areas have softened. As a result, management is indicating underlying profit before tax will be at the lower end of the forecast £65 million to £75 million range.”

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