Just a few days after Black Friday and ahead of the key Christmas trading period, a profit warning from UK car parts and bikes firm Halfords sent the shares down 20%. The aggressive share price move underlines the fragility of consumer-sensitive stocks at a difficult period for the UK economy. It’s also consistent with recent earnings season moves when companies have lowered profit forecasts.
Shares fell 20% nearly 50p to £1.81, erasing all the year’s gains so far, as the company lowered its full-year profit guidance by £5 million. But first-half results were reasonably solid: revenue was up nearly 14% to £873.5 million, driven by a strong performance from Autocentres, where people take cars for MOTs and services. Pre-tax profit rose just 3.3% to £19.3 million on the same period last year.
Halfords highlighted the contrasting performance of its different divisions: “needs based” categories like motoring are still doing well, but discretionary markets like cycling are below expectations. The company said it’s hard to predict how this segment will do in the rest of the year because of weak consumers sentiment. It seems a long way away from headlines during the pandemic era celebrating Halfords’ record cycle sales.
“While it has a competitive strength in being one of the few national brands to sell bikes, thereby making it front of mind for consumers looking to buy such products, this remains a highly discretionary purchase and therefore earnings visibility is poor,” said AJ Bell investment director Russ Mould.
While a new bike was a Christmas staple for children in years gone by, other competing presents like games consoles have now moved to the top of Santa’s wishlist. Cycling has also become more expensive in the inflation era, with even standard models commanding much higher prices.
Underlying pre-tax profit will now fall within a narrower range of £48m to £53m, the company said.
For the rest of the financial year, the company is planning to focus on the motoring side of the business via its loyalty club. But this is not straightforward win either, says Aarin Chiekrie, equity analyst at Hargreaves Lansdown: “But for all the positives around the group’s growing autocentres division, a lack of skilled labour has been holding back progress to some extent. That has made it more difficult to service demand and could limit the group’s ability to carry out more complex and lucrative work. Finding enough trained staff to plug the hole won’t happen overnight.”
The growth of electric vehicles have also upped the skillset for car mechanics, increasing competition for their labour and pushing up wages.
Halfords had recently been talked of as a potential takeover target, with van rental company Redde Northgate making a £1.4 billion approach. After this morning’s slump, Halfords is value at just below £400 million.
