Halfords posted its full-year preliminary results today and group revenue ticked up by 0.3% to £1.14 billion, but the Halfords share price is lower in early trading, down around 8% to 161p.
Profits falls but at upper end of guidance
Underlying profit-before-tax slipped by 4.9% to £55.9 million, which is slightly above the upper end of its guidance. On a like-for-like basis, sales slipped by 2.3% as the difficult trading conditions for the motoring division weighed on the strong cycling unit. Improvements in efficiency and keeping an eye on costs helped gross margin increase by 27 basis points to 51.1%.
The group has pulled its guidance for 2021 even though trading in the first quarter has been better than expected. Uncertainty in relation to the health crisis has prompted Halfords to be cautious about the rest of the new financial year. The company ran three scenarios in regards to how it expects the new year to turn out, and annual like-for-like revenue is tipped to be -5% to -9.5%. The most pessimistic outlook would be a loss of £10 million to zero profit, while the most optimistic forecast is predicting a profit of £10-£20 million, which would be a big fall form this year’s figure.
Double boost helped Halfords share price climb
In the first two weeks of May the Halfords share price was jolted higher. The initial positive move was on the back of the company confirming that it expected annual profit to be at the upper end of its profit guidance, in the region £50-£55 million. The macroeconomic outlook has improved a lot in the past few weeks thanks to the release of economic indicators that pointed to a turnaround in activity, but in early May, almost no companies were issuing optimistic updates – it was far more common for groups to pull or downgrade their forecasts.
In mid-May, Prime Minister Johnson encouraged people to cycle rather than use public transport. The announcement was aimed at having a return to normal life, without potentially triggering a rise in the number of new cases. The remarks from Mr Johnson assisted the Halfords share price. Demand for bikes was already on the rise before the prime minister made his remarks, but every little helps. According to the Bicycle Association, bike sales surged by 50% in April. The bullish run in Halfords share price continued until June, where it hit its highest level since July 2019.
Cycling became more popular amid the health crisis, but the group’s motoring division suffered as a result of people taking fewer car journeys. The government deemed the group was providing an essential service, so it largely remained operational during the lockdown, and the vast majority of its retail shops operated on a ‘dark store’ basis, meaning customers would place their orders from outside the store. Almost all of its garages carried out work on a contactless basis.
Halfords' share price has taken a knock today, but if it holds above the 200-day moving average at 148.53p, the wider positive trend should continue.