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Annual profits at Halfords have tumbled by 55 per cent after it was hit hard by soaring costs and as customers cut back their spending.
However, after unveiling a pre-tax profit of £43.5 million for the year to the end of March, down from £96.6 million in the previous 12 months, the cycling and vehicle maintenance chain forecast a return to earnings growth over the year ahead.
It attributed the drop in profits to inflationary pressures and a tough comparison against the previous year. Though the war in Ukraine had acted as “a catalyst to already increasing inflation”, it was the “volatile political and economic environment” in the autumn that had hit sales of big-ticket items such as bikes as customers reined in their spending amid the wider cost of living crisis.
During the pandemic Halfords, which also services cars and provides MoTs, had benefited from rising demand for bikes and from consumers, buoyed by higher levels of disposable income, kitting out their vehicles with new tyres and other products.
Graham Stapleton, its chief executive, said the group had been investing in prices to keep them low, putting resources into expanding its loyalty club and offering customers interest-free financing to spread the cost of replacing car tyres over a longer period. It has lowered the price of 7,000 products over the course of the past year.
The efforts had already started to yield positive results, Stapleton said, and “we’ve had a strong start to the new financial year”, despite poor weather in early spring. He said the company had noted “significant growth” in staycation-related products, with people buying touring and camping-related items. Consumers are also buying into “needs-based” areas, such as car wiper blades, batteries and bulbs.
Halfords reported revenue growth of 15.3 per cent to £1.59 billion in the year, with service-related sales accounting for almost half the group’s total revenue at 48 per cent and business-to-business revenue up 24 per cent. However, it highlighted that two of its core markets were facing a “significant downturn”. The consumer tyre market remains 14 per cent below 2020 levels and the cycling market is down 24 per cent below the same period.
Stapleton, 55, said he was still betting on bicycles. “We’re very, very confident about the cycling market in the mid-term,” he said. “It still hits the sweet spot in terms of climate change, for example, and there is a big growth spill into electric bikes. We still think it’s the right place to be.”
Looking ahead, the group said it was comfortable with the present market consensus of £53.3 million for profit for the year, forecasting a rise of about 3 per cent as inflationary pressures start to improve.
“While the costs of energy, labour and currency remains high, we do expect to see some deflation in cycling and rubber-based products,” Stapleton said. “We’re also going to see freight costs fall.”
Halfords declared a full-year dividend of 10p per share, an increase of 11 per cent on the previous year.
This helped shares in the business to rise by 16p, or 8 per cent, to 207¾p, having increased by more than 36 per cent in the past 12 months.