Analysts at Panmure Liberum have returned from field visits to Halfords Group PLC's (LSE:HFD) Chelmsford sites with renewed confidence that the motoring and cycling retailer is finally making its hybrid model work.
They expect a “solid” first-half trading update later this month, helped by buoyant cycling sales, stronger garage economics and an improving margin picture.
The analysts have a 'buy' rating on the shares, which at 146p values the company at £319 million, and a 200p target price, a valuation they describe as attractive given what they call “trough” earnings.
Halfords’ Fusion garages, converted from the acquired National Tyres network, are the heart of the story.
Each site combines retail know-how with workshop capacity, with the stores acting as feeders through services such as “WeFit” and “WeCheck”.
Panmure says the first 50 conversions have lifted sales by about 50%, more than doubling contribution and paying back investment within two years. Management’s goal of converting 150 sites by 2027 could add £15 million of annual profit.
The Chelmsford visit suggested the concept is bedding in. The revamped garage now runs seven ramps, up from four, and employs about a dozen staff.
It also sends out up to 15 mobile vans, mainly handling tyres but increasingly offering extras such as battery replacements and dashcam installations. The site’s reviews, once patchy, have improved since the conversion.
Cycling is another bright spot. E-bikes now account for around 15% of sales, with high-end models fetching as much as £11,000. Trade-ins and repairs are rising as bikes become more complex.
Meanwhile, motoring sales have been helped by better-trained staff and more impulse buys.
For the group as a whole, Panmure Liberum thinks the tailwinds are aligning. Gross margins rose 250 basis points last year and the broker expects those gains to “annualise” through this half.
The garage division alone saw margins jump nearly five percentage points in the second half, with pricing and tyre sourcing both contributing.
Headwinds remain. The autumn budget could bring surprises and labour costs continue to rise, adding an expected £23 million to the wage bill.
But with cost savings of more than £20 million identified and the prospect of lower business rates for smaller stores from 2026, the analysts believe Halfords could emerge in stronger shape.
After years of gear-grinding, the chain may finally have found its balance between pedals and pistons.