Halfords cautious on consumer spending as profits tumble 23%
Retailer Halfords has become the latest retailer to warn over consumer confidence as it revealed half-year profits dropped by nearly a fifth.
The car parts-to-bicycles chain said shoppers were holding back on spending on discretionary items, which was hurting bike sales in particular.
A number of retailers have been cautioning over the consumer outlook as Brexit worries take their toll, with Sainsbury’s boss Mike Coupe also on Thursday describing it as unusually “uncertain” going into the peak Christmas season.
This follows similarly cautious comments from bosses at retail giants Tesco and Marks & Spencer.
Halfords reported a 23% fall in half-year pre-tax profits to £28.2 million and said it expected the “short-term conditions for discretionary spend to remain challenging”.
On an underlying basis, pre-tax profits dropped 17.1% to £30.5 million in the six months to September 28.
The chain said it still continues to expect full-year profits to remain “broadly” flat as it predicts a pick-up in earnings over the final six months.
But it stressed this was dependent on trading over Christmas and assuming average winter weather.
Graham Stapleton, recently appointed chief executive of Halfords, said: “Despite the challenging UK consumer environment, we delivered a robust sales and cash-flow performance in the first half, with costs and profit broadly in line with our expectations.”
The half-year results showed like-for-like retail sales rose 2.3%, while its autocentres chain saw growth of 3.3%.
Bike sales rose 1% in the half-year as the summer heatwave offset a difficult start to the year.
But Halfords said: “Whilst we remain confident in the long-term growth prospects for the cycling market, we expect the short-term conditions to remain challenging given that cycling is a discretionary category and not immune to consumer uncertainty.”
It is putting faith in the non-discretionary winter trading in motoring and across its autocentres to offset this over its second half.
Peel Hunt retail analysts said: “We’d guess that current weather conditions aren’t helpful and with the first half a touch below our forecast, the pressure is building.
“A solid second half is required to get Halfords to its targets and we aren’t convinced, what with the vagaries of the weather and consumer confidence, that this is a probability.”
Mr Stapleton added Halfords was “making good early progress as we implement our new strategy, and we are encouraged by the initial signs”.
But the firm is not expecting to see a return to profit growth until 2020/21 as it pushes through the changes, after which it expects benefits of the plans to deliver a “mid-single-digit percentage” annual profit rise.
In September, Mr Stapleton laid out plans to invest in a “differentiated, super-specialist shopping experience”.
New measures include accelerating a store refurbishment programme, increasing services, and better use of data.
Halfords said it would spend about £60 million a year to achieve this,
compared with a previous estimate of about £40 million a year.