Halfords’ cycling division dips below pre-Covid levels

Halfords has today issued a trading update for the third quarter within which there is a revised down profit guidance, as well as signs that sales in the cycling division are dipping back below levels seen prior to Covid’s arrival.

The trading update leans on a three year comparison throughout, stating that FY21 and FY22 are not useful to compare against given the trading anomalies. As a result we are largely presented a view pitched against FY20. We are shown that Q3 cycling division total results for FY22 are 10.5% down on FY20’s comparable period and 8.5% down on last year.

Halfords is however of the belief that it is gaining market share across all measured markets, though cycling’s performance was softer than expected. Where much of the market is struggling on a glut of inventory, Halfords described its retail inventory situation as “lower than last year” with cash flow controlled well.

Overall the revenues year on year to date are 20% down in the cycling division with kids’ bikes the only sub-segment delivering a growth (4.6% vs FY22). Adult bike sale were down 12% against FY22 with a weak consumer demand relative to H1 blamed.

Trade realised via the Cycle to Work scheme was resilient, growing 20.1% versus FY22.

“As we look to FY24, it remains particularly difficult forecasting with any certainty,” starts the long-term outlook in today’s update.

Among factors weighing against all businesses, Halfords cites year-on-year cost inflation in wages, energy and currency, though some respite is realised in declining freight and product costs, whilst the business also aims to reduce its costs base.

Halfords has, as a result of assessing the changed trading picture, revised FY23 underlying profit before tax (“PBT”) guidance to £50m to £60m. This lead to around a 20% dip in the share price during this morning’s trading.

Graham Stapleton, Chief Executive Officer, commented: “We have seen strong revenue growth in what are exceptionally challenging circumstances, and we have continued to grow our market share whilst also tightly managing our costs, inventories and cashflows. Consumer demand for our services and needs-based categories, which now account for the majority of our revenue, continues to grow, and our Motoring Loyalty Club is exceeding expectations as customers recognise the value of its unrivalled discounts and offers.

With unprecedented demand in our Motoring Services business, we are particularly impacted by the nationwide skills shortage, with recruitment proving to be extremely challenging in the current labour market. We are continuing to take a range of actions in order to fill 1,000 new automotive technician roles, which include our new Later Life Apprenticeship programme, as well as a focus on attracting more women and young people from disadvantaged backgrounds into automotive apprenticeships. We are confident that we can offer unrivalled career progression for automotive technicians, and that this will allow us to attract and retain talented individuals, thereby enabling us to better service the demand through FY24.”