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Halfords reports drop in 2018 profits, appoints BA veteran as chairman

Last updated: 10:00 22 May 2018 BST, First published: 07:57 22 May 2018 BST

Halfords
Cycling sales rose for the year despite poor weather in the fourth quarter

Halfords Group plc (LON:HFD) shares plunged on Tuesday after reporting a 5% drop in full-year profits, while it also unveiled the appointment of former British Airways boss Keith Williams as its non-executive chairman.

The bicycle and car parts retailer revealed a fall in underlying pre-tax profit for the year to March 30 fell to £71.6mln, down from £75.4mln a year earlier, as a weaker pound against the dollar pushed up its cost of sales.

READ: Keen cyclists help to boost winter trading at Halfords

The FTSE 250-listed firm's total revenue grew by 3.7% to £1.14bn from £1.10bn and like-for-like sales increased 2%.

Like-for-like sales in Halfords motoring division rose 1.9% while its cycling unit delivered 2.9% growth despite the impact of poor weather in the fourth quarter.

The group's gross margin fell 78 basis points to 50.2%, reflecting higher cost of goods imported due to the devaluation of the pound. Foreign exchange headwinds had a £25mln impact on earnings.

Halfords said it has taken action to offset the impact of a weaker pound through supplier negotiations, operational efficiencies and pricing. It does not see any further impact from unfavourable foreign exchange rates in fiscal years 2019 and 2020.

The company added that a recent strengthening of the pound against the dollar will provide a boost but not until 2020 due to the timing of its hedging programme.

It raised its dividend for the year by 3% to 18.03p each as free cash flow rose by £3.8mln to £41.5mln.

But Halfords shares still dropped 14.6% to 331.20p in early morning trading.

Lack of margin recovery surprising

Nicholas Hyett, equity analyst at Hargreaves Lansdown commented: "The extra cost and lack of margin recovery has taken the market by surprise, knocking the shares this morning, but long-term we still think it’s the right approach.

"Halfords has to compete with online rivals if it’s to be a success, and it’s the group’s ability to deliver face-to-face service and expertise that sets it apart."

For fiscal year 2019 the company said it expects broadly flat underlying pre-tax profit as it predicts cycling prices will remain unchanged, plans to invest in customer services and awaits the benefits of its foreign exchange mitigation actions to come through.

However, Halfords anticipates the motoring market will remain “robust” and continues to see “good growth prospects for the cycling market over time”.

"We are pleased with the FY18 performance in a challenging retail environment, with profits in line with expectations,” said chief executive Graham Stapleton.

“Halfords is a good business with a great future. By focussing more on our specialisms and our services, ensuring that we always provide best value to our customers and presenting a more seamless and inspirational omni-channel experience, there is a really exciting future of growth ahead of us. 

“I look forward to presenting our longer-term plans in September."

Pressure on new CEO to deliver

Stapleton started at Halfords as its new chief executive in January, replacing Jill McDonald who moved to Marks & Spencer PLC (LON:MKS).

Neil Wilson, chief market analyst at Markets. com, said the "reasonable" 2018 results belong to McDonald and investors will "want to see what the new man in charge is about".

He added: "Not a bad performance amid a pretty tough retail environment but the lack of meaningful guidance for 2019 has rattled the market.

"Profits 'broadly in line' with 2018 is not particularly positive and the market probably also wants to see some more detail from Graham Stapleton after 4 months in charge."

Separately, Halfords said Keith Williams will take over as its chairman after the annual general meeting on July 24, replacing Dennis Millard, who is retiring after nine years in the position.

Williams served as the chairman and chief executive of British Airways for 18 years until 2016 when he joined John Lewis Partnership as deputy chairman. He is also a non-executive director at Royal Mail PLC (LON:RMG) and Aviva PLC (LON:AV).

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