November 21, 2012 5:18 pm

Halfords profits dip 20% on higher costs

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Profits at Halfords dropped more than 20 per cent in the six months to end-September, as the sales boost in bicycles and cycling accessories from the “summer of sport” was offset by higher costs.

Dennis Millard, chairman, said the group had invested in IT and training, improving its website and the quality of service to customers.

But the projects hit profitability, with Halfords reporting pre-tax profit of £42.4m (£54.7m) on sales slightly ahead at £455.6m (£454m).

Mr Millard said the group expected full-year profit to be £66m-£70m, the top end of the range it set out in July when it parted company with David Wild, chief executive, and issued a profit warning.

Halfords wants to expand its 11 per cent share of the £1bn-a-year market in selling and fitting basic car parts, such as light bulbs, batteries and windscreen wiper blades. The strategy is aimed at improving group margins.

Matt Davies, named incoming chief executive in October, has joined from Pets at Home, where he introduced veterinary and pet grooming services in more than half of stores. He is due to announce his plans for Halfords after the third-quarter results in mid-January.

The interim dividend was unchanged at 8p per share, reflecting the assurance Mr Millard gave in July. As then, however, he made no commitment about a full-year payout. But he added: “We do recognise the importance of dividends to our shareholders.” Earnings per share were 16.4p (19.7p).

Halfords showed strong cash generation in the six months, with free cashflow of £59.5m (£40.4m). Andrew Findlay, finance director, warned that this represented more than half the full-year number, since it benefited from one-off factors, and the capital spending programme is weighted towards the second half.

FT Comment

A road as down and up as the Halfords share price in the past 12 months would make for a bumpy ride. After the profit warning it hit an all-time low of 189p, but on Wednesday it was trading at 340.7p, near its level a year ago. The move further into car services looks a worthwhile opportunity, but since some of Halfords’ woes relate to execution rather than strategy it is a little soon to get excited. Mr Davies’s early thoughts will give some sense of group direction, but investors may care more about the final dividend. Cash generation is crucial here, as the full-year dividend last year was 22p per share and the highest forecast for full-year underlying EPS is just 28.1p. On a forward price/earnings ratio of about 12 times, the stock’s rating is not far adrift from some other general retailers. Anyone wise or lucky enough to have bought over the summer might want to take some profits.

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