Halfords shares sink after issuing profit warning amid ‘challenging and volatile trading environment’

Halfords shares were sharply lower on Wednesday after the group said in was facing a ‘challenging and volatile trading environment’ and reduced their profit before tax estimates for 2024FY.

Halfords narrowed their profit before tax guidance to £48m to £53m from prior guidance of £48m to £58m.

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The downbeat amendment to profit guidance saw Halford shares crash more than 20% in early trade on Wednesday.

“A profit warning less than a fortnight since takeover talk surrounded Halfords certainly changes the narrative. No sooner were investors excited about the prospect of Halfords buddying up with van hire group Redde Northgate, we’ve now got reduced earnings guidance amid weak sales of bikes and tyres. The share price has understandably taken a beating,” said AJ Bell investment director Russ Mould.

“Apart from a fruitful period during the start of the pandemic where everyone was clambering to get hold of a bike, cycling hasn’t been kind to Halfords for a long time. One has to question the long-term future of bikes within the business.

“While it has a competitive strength in being one of the few national brands to sell bikes, thereby making it front of mind for consumers looking to buy such products, this remains a highly discretionary purchase and therefore earnings visibility is poor.”

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Halfords has increased sales by 13.9% over the past year but the concern lays with sales growth over the coming periods should discretionary spending on big-ticket items such as bikes starts to waver.

The group’s autocentres were a major source of growth with a 33% jump in sales, including the impact of acquisitions. The company said these types of acquisitions form a base for growth and had earmarked capital to expand this side of the business.

Russ Mould added “the future for Halfords seems to be in motoring services where there is a more of a defensive element to its earnings. People rely on their cars to get from A to B and if something goes wrong most have no choice but to pay for repairs. On the whole this is non-discretionary spend and that creates opportunities for Halfords to find more ways to earn from drivers,”

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