Cycling revenue up 59% for Halfords but second half likely difficult

In a trading update issued this morning Halfords revealed plenty about its early Covid-19 trading, simultaneously dropping hints on how it may weather what it predicts will be a difficult winter.

Cycling revenues in the 20-week period to August 21st rose by 59.1% in sharp contrast to motoring business which retreated 28.6%, alongside autocentre trade, down 7.6%. Performance cycling arm Tredz fared even better, absorbing much of Cycle Republic’s stock and turning over 76% more like-for-like as a result of the ‘boom’ in trade.

Sales of new products were up 114% in the period, with our new Carrera range a notable highlight.

Cycling and ‘staycation’ trade was likewise highlighted by the CEO as the saving grace of an otherwise difficult period of trading.

Graham Stapleton commented: “This 20-week trading period started on 4 April and therefore coincides with the most significant impacts of COVID-19 in the UK. Our number one priority has always been the health, safety and wellbeing of our colleagues and customers, and on behalf of our Board, I would like to express my sincere gratitude to our dedicated colleagues and loyal customers for their support and patience during such a challenging time.

“We are pleased to have delivered a strong trading performance during the period. We have been able to move quickly in order to capitalise on the continued strong demand for cycling products, with sales of electric bikes and scooters up 230% year-on-year, while cycling services have been boosted by our free 32-point bike check and the Government’s Fix your Bike Voucher scheme. We have also seen a return to growth in our motoring business, driven by an increase in car journeys and by a high level of demand for
staycation-related products such as roof bars and roof boxes.

“It has been especially encouraging to see our investments in key strategic initiatives both drive, and enable, such a resilient performance, allowing us to capitalise on favourable market shifts. In the last 12 months we have tripled our investment in the ongoing development of our web platform to enable a
dramatic shift to online ordering, with sales up +160% year-on-year and representing 54% of total revenue in the period. We have also reaped the benefits in motoring services of a more scaled operation, a Group web platform, a best-in-class digital operating model in our garages and a new media campaign to raise awareness of our unique proposition. And our strategic focus on B2B channels continues to drive strong double-digit growth.

“However, there is still significant uncertainty around the impact of COVID-19 and the macro-economic environment in the coming months, and as a result we are cautious on the outlook for the remainder of this year. Looking further ahead, we are confident in the long-term strategy of our business and in the growth prospects of the cycling and motoring markets in which we operate.”

Overall group revenue rose by 7.5% and 5% on a like-for-like basis. Within this the business has begun to optimise the profitability of its cycling business, which tends not to return as generously as its motoring arm.

“We are on track to improve our Cycling gross margin by 300 bps in FY21, driven by more favourable buying terms, component rationalisation and more effective promotional activity,” updated the business.

Halfords’ net cash sat at £105m on 21 August 2020, approximately £70m better than the same date last year, driven in part by lower cycling stock levels but also by strong cash management and planned faster stock turn as a consequence of improved lead times, the consolidation of ranges and better sell-through.

This is among the first trading updates where the business has factored out the trade that it would have undertaken via its former chain Cycle Republic which it wound down earlier this year, passing on many retail outlets to new chain Pure Electric. Thankfully for Halfords much of its bike stock was passed on to Tredz, which performed strongly during the Covid-19 peak in spring.

Meanwhile, a restructuring is underway where several closures are expected in order to streamline the business and reinvest into profitable areas of the business’s retail and service offerings.

“Specifically, as announced in our preliminary results on 7 July 2020, we have
accelerated the right-sizing of our physical estate (across both stores and garages) that was already underway prior to the COVID-19 outbreak. We are making good progress towards our target of closing up to 10% of our property estate in FY21 (c. 80 sites), of which we have exited 22 Cycle Republic stores and seven additional stores and garages so far this financial year,” said the statement.

Heading in to the second half “uncertainty” is the buzzword and thus Halfords’ full year guidance is cautious citing a potential second wave of Covid-19, the economic difficulties posed by large scale unemployment and the impact of Brexit all combining to give a gloomy outlook. In tandem, cycling trade i likely to quieten into winter, which Halfords say “means that profit in the second half
could be significantly lower than the first half.”