Halfords says inflation remains a ‘major headwind’ as profits fall

Halfords has warned that inflation “remains a major headwind” for the motor and cycling services retailer after profits fell last year.

The group told investors it was working to minimize the impact of a 10 percent increase in the national minimum wage and “significant increases” in shipping rates from early 2024.

It came as Halfords reported a fall in annual profits, with the company blaming lower consumer confidence and bad weather for the drop in store traffic.

The company posted underlying pre-tax profit from total operations of £36.1m for the year to March 29, up from £44.2m a year earlier and just below analyst forecasts of £36.2 million.

Halfords said its cost base had increased by around £37m over the period, offsetting group revenue growth of 7.9 per cent and bringing cumulative cost inflation to around £120m over the past three years.

Freight rates have soared to their highest levels outside of the pandemic era, in part due to the disruption of shipping in the Red Sea.

Halfords said it has achieved freight rates “well below market spot rates” but still forecasts freight costs to be between £4 million and £7 million higher than expected in early 2024.

It said: ‘In this context, we continue to focus on optimizing the platform we have built and controlling what we can.

“As such, we plan to allocate proportionately fewer resources to the strategic transformation, as set out in more detail at the end of the strategic and operational review.”

It added that it had achieved cost savings of more than £35m during the financial year, ahead of its original target of £30m and taking cumulative cost savings to around £70m over the past three years.

Halford Shares They rose 4.5 percent to 142 pence in early trading.

The company’s shares have lost about 35 percent of their value over the past year as markets reacted to profit warnings due to wet weather and lower cycling demand.

Mark Crouch, an analyst at eToro, said: “It wasn’t long ago when Halfords enjoyed something of a bonanza during the pandemic.

‘Consumer spending was rampant during lockdowns and millions of us opted to cycle, for which Halfords was there to meet the surge in demand.

‘From one extreme to the other, the pendulum has swung back, putting Halfords in a vulnerable position. The company’s decision to focus on automotive services may have softened the blow, if only slightly.

‘Numerous profit warnings will be a major concern for shareholders. And in a period when consumer spending has dried up, demand for cycling products and services appears to have all but evaporated.’

Halfords said bicycle and tire volumes remain 40 and 14 per cent below pre-Covid levels respectively, having suffered a worse decline than the industry had forecast.

It also said customers have reduced their spending on expensive discretionary products “even further”, and Halfords now expects cycling and consumer tire volumes to fall again next year.

Halfords said: “While these headwinds have inevitably impacted the group’s financial performance in the short term, our strong and growing market positions provide us with significant opportunities for profitable growth.”

‘For example, consolidation in the bicycle market had a serious impact on Halfords in FY24, but as the undisputed market leader, we expect to emerge in an even stronger position once market conditions normalize.

‘In addition, a recovery of the consumer tire market closer to pre-Covid levels would provide a significant opportunity for revenue growth. The group’s ability to capitalize on these opportunities is supported by its strong balance sheet.’

Boss Graham Stapleton added: ‘This has been a year of strong strategic and operational progress for Halfords, and we are pleased to have achieved a resilient financial performance in the face of challenging core markets.

“We have continued to invest in our strategically important services business, which for the first time represents more than half of our total revenue.”