Cycling boom levels against sharp drop in motor trade for Halfords

Halfords has this morning delivered its much anticipated second quarter results, within which it was revealed the cycling boom was pinned back against the group’s motoring business, leaving overall sales down 2.8% compared to last year.

Many will have been looking to Halfords’ results as an indicator of just how strong the coronavirus-driven cycling boom was, with Q2 results the first to show data from the 13 weeks leading to July 3rd. Thus far, it has largely been on the fly reporting that has painted a picture of just how drastic the spike in demand has been.

Group revenue came in at £1.15 billion in the year to April 3rd, up 0.3% on the prior year. Underlying pre-tax profit fell 4.9% to £52.6 million.

Cycling sales didn’t disappoint for Halfords, rising by 57.1% like-for-like as people sought both to take advantage of the Government permitting cycle use for exercise during lockdown and as a means of transport to get around the ill-advised use of public transport.

Servicing work was highlighted as a driver of further trade, said to be up 41.9% on a like-for-like basis in the four weeks to July 3rd.

Tredz, Halfords’ performance cycling arm, outdid the main business, adding 87.3% year-on-year. This chunk of the business gained stock from the Cycle Republic business that Halfords cut loose to save money, quickly selling much of the transferred inventory thanks to the ongoing cycling boom.

Pure Electric took on 11 of the properties for its new electric only retail chain, which now seeks to expand quickly across Europe with former Cycle Republic boss Peter Kimberley as its CEO.

Cost cutting has continued, according to the statement, which reminds of a suspended dividend for shareholders, as well as reducing good-not-for-resale spend. Halfords further took advantage of the Government’s furlough and business rates relief schemes.

As of July 3rd, the business has £200 million of liquidity and £10 million in cash behind it. A further £25 million in additional funding has been secured via the Government’s CLBILS scheme, which Halfords says it considers contingency funding.

Halfords believes that cycling demand will remain at a high for the remainder of the year, stating that a priority is to meet “unprecedented demand” with adequate supply; a challenge that is shared across the cycling business.

Forward looking, the statement offered: “We expect a shift towards commuter bikes, as people return to workplaces and cycling infrastructure improves, and we expect bike servicing and repairs to become more in-demand as consumers take advantage of the Government’s voucher repair scheme (for which you can register here). We also expect motoring demand to improve during the year, as car journeys pick-up, workplaces and schools reopen and our retail stores can open with fewer safety restrictions in place. The transmission risk of COVID-19 is significantly higher in confined indoor spaces, meaning that car journeys will be seen as a safer alternative to public transport and, as winter approaches, a more pragmatic and comfortable alternative to cycling and walking.”

Motoring erases gains

Cutting short reasons to be cheerful for the business, motoring revenue fell 45.4%, something that saw the share price take a strong dip this morning, erasing gains just prior to the financials’ release. Car journeys fell drastically during lockdown, though has quickly returned to normal levels, according to data from the DfT.

Graham Stapleton, Chief Executive Officer, commented: “This has been another year of good progress against the backdrop of a retail market that was challenging even before the emergence of the COVID-19 pandemic. We are particularly pleased to have delivered strong revenue growth in Group Services (+9%), Online (+17%) and B2B (+25%), which are our main areas of strategic focus. Our Autocentres business grew strongly, boosted by the acquisitions of both McConechy’s and Tyres on the Drive, and more broadly in motoring services we expanded our fleet of Mobile Expert vans from 3 to 75. This was particularly timely given strong demand for at-home services.

“The start of the current financial year has of course been dominated by the impact of COVID-19, and our status as an essential retailer was a clear endorsement of the wider role that Halfords has to play in keeping the UK moving. Having responded quickly and decisively to cater for the surge in popularity of cycling during lockdown, we are now seeing increased demand for motoring services and products as people start using their cars regularly again having not done so for the last few months.

“Despite the wider uncertainty caused by COVID-19, we remain confident in the long-term prospects for Halfords given the strong macro tailwinds within our market-leading Motoring and Cycling businesses. The strong progress we have made in FY20 and in the first quarter of FY21 has been made possible by the hard work and dedication of our thousands of colleagues, who I am proud to work alongside”.

Future

Further down the earnings release Halfords said it expects to lean its bias towards cycling for the short-term. It welcomed the “tailwind”, but acknowledged that cycling business often carries a lower margin and weighs heavier on capital, meaning profits are often lower than in motoring.

The group said in November of 2019 that profitability remains a key focus for revisions to the business and that it will adapt segments to meet this goal.